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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X]
For the fiscal year ended December 31, 1996
Commission file number 0-18287
ORBITAL SCIENCES CORPORATION
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21700 ATLANTIC BOULEVARD 06-1209561
DULLES, VIRGINIA 20166 (I.R.S. Employer I.D. No.)
(Address of principal executive offices)
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(703) 406-5000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 (listed on The Nasdaq National Market System)
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant based on the closing sales price as reported on the Nasdaq
Stock Market on March 19, 1997 was approximately $515,228,830.
As of March 12, 1997, 32,201,802 shares of the registrant's Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for fiscal year
ended December 31, 1996 (the "Annual Report") are incorporated by reference in
Parts I and II of this Report. Portions of the registrant's definitive Proxy
Statement dated March 24, 1997 (the "Proxy Statement") are incorporated by
reference in Part III of this Report.
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ORBITAL SCIENCES CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1996
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PART I Page
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Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 4A. Executive Officers of the Registrant 12
PART II
Item 5. Market for Registrant's Common Equity 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition 14
and Results of Operations
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants 14
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
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Pegasus(R) and Taurus(R) are registered trademarks and service marks, and
OrbView(R) is a registered trademark of Orbital Sciences Corporation;
Orbital(TM), MicroStar(TM) and PegaStar(TM) are trademarks of Orbital Sciences
Corporation; and Orbital(sm) and ORBIMAGE(sm) are service marks of Orbital
Sciences Corporation. ORBCOMM(sm) is a service mark of ORBCOMM Global, L.P.
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ITEM 1. BUSINESS
BACKGROUND
Orbital Sciences Corporation (together with its subsidiaries,
"Orbital" or the "Company") is a space and information systems company that
designs, manufactures, operates and markets a broad range of space-related
products and services. Orbital's products and services are grouped into three
business sectors: space and ground infrastructure systems, satellite access
products and satellite services. Space and ground infrastructure systems
include launch vehicles, satellites, electronics and sensors, and ground
systems and software. Satellite access products include low-cost, hand-held
satellite-based navigation and communications products. Satellite services
include satellite-based two-way mobile data communications and remote sensing
and Earth imaging services. Orbital operates major launch vehicle, satellite
and electronics engineering, manufacturing and test facilities in Dulles,
Virginia, Germantown, Maryland and Chandler, Arizona, a launch vehicle and
satellite integration and test facility at Vandenberg Air Force Base,
California, a space sensors and instruments facility in Pomona, California, a
ground systems and software facility in Vancouver, British Columbia, and
facilities for its navigation and communications products in San Dimas,
California and Mexicali, Mexico.
Orbital was incorporated in Delaware in 1987 to consolidate the
assets, liabilities and operations of Space Systems Corporation and Orbital
Research Partners, L.P. The Company acquired Space Data Corporation ("Space
Data") in 1988, thereby expanding its product lines and increasing its vertical
integration in production and testing. In late 1992, SSC and Space Data were
merged into Orbital, with the Company being the surviving corporation. In
September 1993, Orbital acquired all the assets of the Applied Science
Operation, a division of The Perkin-Elmer Corporation. This operation designs,
develops and produces satellite-borne scientific sensors for space and
terrestrial research, in situ atmospheric monitoring equipment for human space
flight programs and other sensors and instruments for commercial and military
applications. In August 1994 and December 1994, Orbital acquired Fairchild
Space and Defense Corporation ("Fairchild") and Magellan Corporation
("Magellan"), respectively. The Fairchild acquisition enhanced Orbital's
satellite system and subsystem development and production capabilities and
expanded Orbital's existing product lines by adding various sophisticated
electronics products. Magellan designs, manufactures and markets hand-held
receivers for Global Positioning System ("GPS") satellite-based navigation and
positioning for commercial and consumer markets, along with portable satellite
communications equipment. In November 1995, Orbital acquired MacDonald,
Dettwiler and Associates, Ltd. ("MDA"), a leading supplier of commercial
satellite imaging ground stations and related information processing software
based in Vancouver, British Columbia.
In 1992, Orbital established a wholly owned subsidiary, Orbital
Imaging Corporation ("ORBIMAGE"), to develop and operate commercial Earth
imaging and remote sensing satellites and to market the information services
derived from such satellites.
In 1993, Orbital's majority owned subsidiary Orbital Communications
Corporation ("OCC") and Teleglobe Mobile Partners ("Teleglobe Mobile"), an
affiliate of Teleglobe Inc., formed ORBCOMM Global, L.P. ("ORBCOMM Global") to
develop, construct and operate a low-Earth orbit satellite-based two-way data
communications and messaging system (the "ORBCOMM System"). OCC and Teleglobe
Mobile also formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM
USA") and ORBCOMM International Partners, L.P. ("ORBCOMM International"), each
with the exclusive right to market the ORBCOMM System in the United States and
internationally, respectively.
DESCRIPTION OF ORBITAL'S PRODUCTS AND SERVICES
Orbital's products and services are grouped into three categories:
space and ground infrastructure systems, satellite access products and
satellite services. Orbital's overall business is not seasonal to any
significant extent.
SPACE AND GROUND INFRASTRUCTURE SYSTEMS
The Company's space and ground infrastructure systems include launch
vehicles, satellites, electronics and sensors, and ground systems and software.
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SPACE LAUNCH VEHICLES. The Company has developed and produces the
Pegasus and Taurus space launch vehicles. Orbital's Pegasus launch vehicle is
launched from beneath the Company's leased Lockheed L-1011 aircraft to deploy
satellites weighing up to 1,000 pounds into low-Earth orbit. Through December
1996, the Company had conducted a total of fourteen Pegasus missions, twelve of
which were fully or partially successful. Whether a mission is fully or
partially successful depends on the particular mission requirements designated
by the customer. Orbital conducted five Pegasus missions in 1996. Following a
comprehensive review of design, assembly, test and operations procedures
triggered by two earlier unsuccessful flights, the Pegasus XL, an enhanced
version of the standard Pegasus launch vehicle, successfully launched a
satellite for the U.S. Air Force to its intended orbit in March 1996 and
performed two successful National Aeronautics and Space Administration ("NASA")
missions during the summer. A standard Pegasus also successfully launched a
U.S. Department of Defense ("DoD") satellite in May 1996. In a November 1996
launch for NASA, a Pegasus XL delivered two scientific satellites to their
designated orbits, but the satellites failed to separate from the launch
vehicle. The Pegasus separation system used on this launch has worked properly
on all previous launches on which it was deployed. The Company believes that
the problem was caused by a faulty electrical power system on the Pegasus that
failed to activate certain satellite separation mechanisms, and does not
anticipate significant further delays in its launch schedule to implement
necessary corrective actions.
The higher capacity Taurus launch vehicle is a ground-launched
derivative of the Pegasus vehicle that can carry payloads weighing up to 3,000
pounds to low-Earth orbit and payloads weighing up to 800 pounds to
geosynchronous orbit. In March 1994, Orbital successfully launched the first
Taurus vehicle, deploying two satellites for the Defense Advanced Research
Projects Agency ("DARPA").
U.S. and international government customers for Pegasus launch
vehicles include NASA, the U.S. Air Force, DARPA, the Ballistic Missile Defense
Organization ("BMDO"), and the national space agencies of Spain and Brazil.
Commercial customers include ORBCOMM Global and CTA, Incorporated ("CTA"). In
addition, ORBIMAGE plans to launch a remote imaging satellite on Pegasus.
Customers for Taurus launch vehicles include NASA, the U.S. Air Force, Ball
Corporation ("Ball"), ORBCOMM Global (as a secondary payload on the Ball
mission) and South Korea's space agency.
During 1996, NASA selected Orbital to design, construct, test and
operate the X-34 reusable launch demonstrator vehicle. The X-34 will test and
demonstrate advanced reusable launch system technologies and materials as part
of NASA's Reusable Launch Vehicle Program that is spearheading the development
of next-generation, lower cost launch vehicles.
SUBORBITAL LAUNCH VEHICLES. Suborbital launch vehicles place payloads
into a variety of high-altitude trajectories but, unlike space launch vehicles,
do not place payloads into orbit around the Earth. The Company's suborbital
launch products include suborbital vehicles and their principal subsystems,
payloads carried by such vehicles and related launch support installations and
systems used in their assembly and operation. The Company offers its customers
customized vehicle and payload design, manufacturing and integration, launch
and mission support, and tracking and recovery services, as well as
construction and activation of launch pads and other infrastructure elements.
Customers typically use the Company's suborbital launch vehicles to launch
scientific and other payloads and for defense-related applications such as
target signature and interceptor experiments. Primary customers of the
Company's suborbital launch vehicles include the U.S. Army, the U.S. Navy and
BMDO.
Orbital's primary programs in 1996 for suborbital launch vehicles and
related systems included the Theater Missile Defense Critical Measurement
Program pursuant to which Orbital provides ballistic and maneuvering tactical
target suborbital vehicles for use by the U.S. Army and U.S. Air Force in
developing and testing interceptor and sensor systems, and BMDO's Red Tigress
anti-missile defense research program. Orbital conducted two suborbital
launches in 1996, both of which were successful. From January 1993 through
March 1997, the Company has conducted a total of 34 launches of suborbital
vehicles with a 100% success rate.
SATELLITES. The Company designs and produces small and medium class
satellites for commercial, scientific and military applications. The Company's
small satellite platforms such as MicroStar and PegaStar are designed and
produced to be launched by the Pegasus or Taurus launch vehicle. The PegaStar
spacecraft is a general purpose
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spacecraft that has successfully performed one mission for the U.S. Air Force
measuring space radiation and carrying out related experiments. It will also
be used for certain ORBIMAGE satellite-based remote imaging programs, such as
the OrbView-2 ocean and land surface environmental monitoring satellite system
and the OrbView-3 high-resolution remote imagery system. Orbital's MicroStar
spacecraft platform, which is placed into orbit by the Pegasus launch vehicle,
is designed for use in the ORBCOMM System and also for a variety of small space
science and remote imaging projects. The first three MicroStar spacecraft were
deployed by Orbital in 1995, two for the ORBCOMM System and the other for
ORBIMAGE to monitor lightning and severe weather patterns, and continued to
perform throughout 1996. Customers for the Company's small spacecraft include
NASA, the U.S. Air Force, DARPA and ORBCOMM Global.
Orbital's medium class satellites, such as NASA's TOPEX/Poseidon,
NASA's Upper Atmosphere Research satellite and the National Oceanic and
Atmospheric Administration's Landsat 4 and Landsat 5, have been in space for up
to 15 years, and are used to gather various scientific data, such as ocean
topography and atmospheric imaging information. Orbital also is the spacecraft
supplier to Johns Hopkins University, which is leading NASA's Far Ultraviolet
Spectroscopic Explorer (FUSE) program to measure the early universe's radiation.
Orbital also designs and manufactures satellite command and data
handling, attitude control and structural subsystems for a variety of
government and commercial customers, and provides a broad range of spacecraft
design and engineering services as well as specialized analytical engineering
services for NASA, DoD, the Department of Energy and other customers. For
example, Orbital provided engineering support products and services for both
the first and second repair missions for the orbiting Hubble Space Telescope.
ELECTRONICS AND SENSORS. Orbital develops, manufactures and markets
defense electronics, including advanced avionics and data management systems
for aircraft flight operations and ground support applications. These systems
collect, process and store mission-critical data for, among other things,
mission planning and flight operations, and manage on-board equipment for
strategic and tactical military aircraft, helicopters and surface vehicles.
The primary customers for data management systems are the U.S. Navy, the U.S.
Air Force, and various DoD prime contractors and foreign governments. The
Company is the leading supplier of certain avionics systems and products,
including mission data equipment for the U.S. Navy and data transfer equipment
and digital terrain systems for the U.S. Air Force. In addition, the Company
provides stores management systems, including weapons arming and firing
functions for use on tactical aircraft and helicopters. The avionics systems
and products are deployed on a number of platforms, including the F-4, F-14,
F-16, F-18 and F-22 aircraft and the LAMPS helicopter.
In addition, Orbital produces electronics and data management systems
that have been applied to the development and installation of "intelligent
transportation systems," primarily, to date, for metropolitan mass transit
operators. These systems help manage public bus and light rail systems,
provide for voice and data communications and transmit precise GPS-based
location information in emergency situations. Customers for Orbital's
intelligent transportation systems include the metropolitan mass transit
authorities in Chicago and New York City.
Orbital also produces satellite-borne scientific sensors and
instruments, such as atmospheric ozone monitoring instruments and environmental
sensors. The Company's second and third Total Ozone Mapping Spectrometer
("TOMS") instruments were successfully launched in 1996, one on a Pegasus
vehicle for NASA. TOMS measures ozone concentrations around the world for the
purpose of monitoring the effect of man-made chemicals and atmospheric
conditions on the ozone layer. Orbital has also developed and produced an
atmospheric monitoring system for use on the Space Station called the
Atmospheric Composition Monitoring Assembly, which will measure various
atmospheric gases in the crew's living quarters on the Space Station for the
purpose of ensuring a healthy environment for astronauts. In addition, Orbital
recently expanded its commercial base of sensors products to include the
manufacturing and marketing of sensors that analyze fuel properties in the
chemical, biotechnology, pharmaceutical and steel industries.
SATELLITE GROUND SYSTEMS. Orbital is a leading supplier of commercial
satellite remote imaging ground stations and a provider of advanced
space-qualified software and air navigation systems. The Company's ground
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systems have also expanded to include software-intensive systems designed for
naval operations, artillery command and control, radar deception and logistics
support.
The Company develops, provides and upgrades commercial satellite
remote imaging ground stations and related information-processing software. Of
the 27 major non-military satellite ground stations around the world, Orbital's
MDA subsidiary has built or been involved in the construction of 23 ground
stations in 20 countries. These ground stations are designed to receive and
process data from the eight major civil and commercial Earth observation
satellites currently in operation. MDA also develops and markets software that
generates and processes imagery and mapping products from satellites and
airborne sensors. Customers for the Company's ground stations and Earth
information systems include the European and Canadian space agencies as well as
various commercial and government customers around the world.
The Company's aviation systems products include automated aeronautical
information and air traffic management systems. The Company has developed an
automated aeronautical information management system that delivers weather and
route information directly to a pilot by computer. This system is designed to
address a growing trend toward automation and commercial operation of air
traffic control systems. Faster and less expensive to operate than traditional
manual systems, automated aeronautical information systems provide pilots and
other users with aeronautical and meteorological information on a timely basis.
Customers for the Company's aviation systems products include the military and
civil aviation authorities in various countries such as Australia, Belgium,
Canada, Norway, Malaysia and Switzerland.
SATELLITE ACCESS PRODUCTS
The Company's Magellan subsidiary designs, manufactures and markets
hand-held GPS navigators that provide users with precise positioning and
location information and also develops and provides personal data and voice
communicators that operate in conjunction with satellite systems. Magellan
manufactures satellite-based navigation and communications products for
commercial and consumer markets including recreational marine and aviation
users, outdoor recreational users such as hunters and hikers and professional
users such as geologists, geographers, surveyors, natural resource managers and
construction contractors. Magellan focuses its research, design and
engineering activities on the development of GPS navigators that are reliable,
portable, easy to use and highly affordable, targeting the growing recreational
market. Recently, Magellan announced the introduction of a combined GPS
navigator and personal messaging communicator for the ORBCOMM System that
Magellan expects to be ready for shipment in 1997, and Magellan will continue
to develop new satellite-based communications and tracking technology that is
compatible with the ORBCOMM System and other satellite networks.
SATELLITE SERVICES
In the Company's satellite services sector, ORBCOMM Global and
ORBIMAGE are developing satellite-based services to address markets for global
two-way data communications and information derived from remote imaging of the
atmosphere, oceans and land surfaces.
ORBCOMM COMMUNICATIONS SERVICES. The ORBCOMM System is designed to
provide virtually continuous low-cost monitoring, tracking and messaging
communications coverage over most of the Earth's surface. Under this system,
subscribers are able to use inexpensive communicators to send and receive short
messages, high priority alerts and other information, such as the location and
condition of automobiles, trucks, industrial equipment, shipping vessels and
other remote assets. The Company expects that the ability to send and receive
data and messages without the geographic limitations of existing communications
systems will stimulate the growth of new markets for satellite-based
monitoring, tracking and messaging communications and will be used to
supplement terrestrial-based communications systems by providing relatively
low-cost geographic coverage in areas these systems are unable to reach.
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The global ORBCOMM System design consists of a constellation of small
low-Earth orbit satellites, a control center that monitors and manages the flow
of information throughout the System, the gateways that transmit and receive
signals and process data and other information and the communicators that are
used by subscribers to transmit and receive messages to and from the
satellites. The first two ORBCOMM Global satellites launched in April 1995 are
being used to provide initial services, primarily in monitoring and tracking
applications, following the commencement of commercial service in the United
States in February 1996. There are currently four operational U.S. "gateway"
Earth stations located in New York, Washington, Arizona and Georgia, while
gateways are also planned to be owned and operated by ORBCOMM Global licensees
in strategic locations around the world. During 1996, ORBCOMM Global reached
agreements with several manufacturers for the development and manufacture of
hand-held communicators and various types of industrial communicators that
monitor fixed assets. In March 1996, subscriber communicators became
commercially available from Panasonic, the first of ORBCOMM's manufacturers.
The ORBCOMM System will be operated throughout the world by ORBCOMM
Global licensees, who will be responsible for obtaining the applicable foreign
regulatory approvals and for constructing the ground network in their
designated territories. The ORBCOMM System is marketed in the United States
through ORBCOMM USA. ORBCOMM International has signed preliminary agreements
with seven candidate licensees serving 69 countries to seek such regulatory
approvals and to initiate territory-specific market development in such
countries. ORBCOMM International has definitive agreements with international
licensees who will provide regional services in Canada, Europe and portions of
East Asia, the Middle East and Africa.
The two ORBCOMM System satellites currently in orbit and the U.S.
gateways provide communications availability in the United States approximately
10% of each 24-hour period, with maximum outages of approximately nine hours.
This type of availability is particularly appropriate for ORBCOMM Global's
planned initial applications focusing on monitoring the status of remote assets
and tracking trucks and cargo, where several readings per day satisfy a
customer's requirements. With the launch of additional satellites,
communications availability will also increase. The Company expects that, with
a planned constellation of 28 satellites and appropriately situated gateways,
the ORBCOMM System will provide communications availability generally exceeding
95% of each 24-hour period in the United States and other temperate zones in
the Northern and Southern hemispheres and exceeding 75% of each 24-hour period
in the equatorial region. Equatorial region availability could be improved to
generally exceed 90% with an additional group of eight satellites. Outside the
United States, the ORBCOMM System will only be available in countries and
regions where appropriate licenses have been obtained and where there is a
gateway that can serve the applicable market.
Under the ORBCOMM System Procurement Agreement between Orbital and
ORBCOMM Global (the "Procurement Agreement"), Orbital is constructing and will
launch 26 additional satellites, and will construct an additional eight
satellites, all on a fixed-price basis. Consistent with industry practice for
similar contracts, the Procurement Agreement contains certain performance
incentives with respect to the satellites and their launches.
The ORBCOMM Partnerships. Under ORBCOMM Global's partnership
agreement, action by the partnership generally requires the approval of general
partners holding a majority of the participating interests (i.e., interests
participating in profits and losses). OCC and Teleglobe Mobile are each 50%
general partners in ORBCOMM Global, with the result that OCC and Teleglobe
Mobile share equal responsibility for the operational and financial affairs of
ORBCOMM Global, and the approval of both OCC and Teleglobe Mobile is necessary
for ORBCOMM Global to act on major matters. OCC indirectly holds a 51%
participating interest in ORBCOMM USA, and Teleglobe Mobile indirectly holds a
51% participating interest in ORBCOMM International, with the result that OCC
acting alone can generally control the operational and financial affairs of
ORBCOMM USA, and Teleglobe Mobile acting alone can generally control the
operational and financial affairs of ORBCOMM International.
Financing. Orbital and Teleglobe Mobile's total equity capital
contributions to ORBCOMM Global are approximately $75 million and $85 million,
respectively. In 1996, ORBCOMM Global and its wholly owned subsidiary, ORBCOMM
Global Capital Corporation, issued $170,000,000 of senior unsecured notes (the
"Notes") to institutional investors. The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International. The guarantees and the Notes are non-recourse to
Orbital, bear interest at a fixed rate of 14% and provide for noteholder
participation in future ORBCOMM System
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revenues, payment of which may be deferred by ORBCOMM Global to the extent
certain fixed charge ratios are not met. Net proceeds from the sale of the
Notes (approximately $164,500,000) are being applied to (i) the design,
construction, launch, operation and marketing of the ORBCOMM System and related
development, operating and management expenses (including cost contingencies)
and (ii) the first two years of interest on the Notes.
Start-up of the ORBCOMM System will produce significant ORBCOMM Global
operating losses for several more years. Even if the ORBCOMM System is fully
constructed and operational, there can be no assurance that an adequate market
will develop for ORBCOMM services, that ORBCOMM Global will achieve profitable
operations or that Orbital will recover any of its past or anticipated
investment in the ORBCOMM System. Because Orbital (through OCC) has a 50%
participating interest in ORBCOMM Global, Orbital expects to recognize its
proportionate share of ORBCOMM Global profits and losses.
As of March 14, 1997, certain officers and employees of ORBCOMM Global
and Orbital held options to acquire 611,680 shares of OCC's common stock (or
approximately 13 percent of OCC's outstanding common stock) at option exercise
prices ranging from $1.50 to $26.50 per share. On an annual basis, holders of
OCC common stock acquired on exercise of these options may, subject to certain
conditions, require OCC to purchase such OCC common stock at its then fair
market value, subject to limitations under the indenture for the senior note
financing. As of March 14, 1997, there were 48,020 shares of OCC common stock
outstanding that were acquired in connection with option exercises by current
or former OCC and Orbital employees.
Regulatory Approvals. OCC has retained control over the applicable
license issued by the Federal Communications Commission ("FCC"), consistent
with FCC regulations. This license, which provides that the ORBCOMM System
must be constructed within six years from the date the license was granted,
extends for a period of ten years from the date the first ORBCOMM System
satellite was operational. At the end of the seventh year of the ten-year
term, a renewal application must be filed with the FCC. As with any such
license, the ORBCOMM System FCC license may be revoked and a license renewal
application may be denied for cause. In addition, there can be no assurance
that ORBCOMM Global or its international licensees will be granted all licenses
or approvals necessary to operate the ORBCOMM System in any other country.
ORBIMAGE REMOTE SENSING AND IMAGING SERVICES. The Company is
currently seeking, through its ORBIMAGE subsidiary, to develop and market a
broad range of information services that involve identifying and monitoring
global environmental changes and weather patterns, and collecting and
disseminating digital land maps and other remote imaging information. Small
Earth-viewing satellites and related sensors and instruments placed in low
orbits are planned to offer cost-efficient image collection and processing,
together with daily global coverage and high-resolution imaging quality.
Since April 1995, ORBIMAGE's first satellite, OrbView-1, has been
monitoring lightning and severe weather patterns. Orbital has also entered
into a contract with NASA to provide worldwide, daily ocean imagery using
Orbital's OrbView-2 environmental monitoring satellite system. The Company
plans to develop, produce, launch and operate the OrbView-2 system to deliver
high-quality multi-spectral ocean imagery and land surface imagery for up to
five years. The OrbView-2 launch has been delayed several years, primarily due
to technical challenges associated with the development of the spacecraft. The
OrbView-2 satellite has completed final testing and is currently scheduled to
be launched in the first half of 1997. In addition to providing unprocessed
real-time ocean data to NASA, ORBIMAGE plans to market the OrbView-2 imagery
directly and indirectly through value-added resellers and other marketing
agents to other U.S. Government users and to potential domestic and
international customers such as commercial fishing fleets, oil and gas
companies, ocean transportation operators, oceanographers and agricultural
companies.
ORBIMAGE is pursuing a one-meter high-resolution satellite imagery
business based on imagery to be provided by the OrbView-3 satellite currently
under development by the Company, with Orbital under contract to provide the
launch service, ground stations and other related products and services.
OrbView-3 would be the third in a fleet of three spacecraft, including
OrbView-1 and OrbView-2, that will constitute the foundation of ORBIMAGE's
commercial satellite remote imagery business. The Company is currently
pursuing a transaction that would involve a sale of ORBIMAGE equity securities
to one or more third parties in order to finance such venture including the
development and construction of the OrbView-3 satellite and ground system.
There can be no assurance that the
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Company will be able to conclude such financing arrangement or develop
profitable commercial Earth observation and other remote imaging businesses.
* * * *
Financial information about the Company's products and services,
domestic and foreign operations and export sales is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Notes to the Company's Consolidated Financial Statements set forth in the
Company's Annual Report, and is incorporated herein by reference.
COMPETITION
Orbital believes that competition for sales of its products and
services is based on performance and other technical features, price,
reliability, scheduling and customization.
While there is currently no direct domestic competition for the
Pegasus and Taurus launch vehicles, potential competition may come from launch
systems derived from the LMLV currently being developed by Lockheed Martin
Corporation ("Lockheed"). Pegasus may face competition from launch systems
derived from government surplus ballistic missiles. The Israeli Shavit vehicle
and other potential foreign launch vehicles could also pose competitive
challenges to Pegasus, although U.S. government policy currently prohibits the
launch of foreign vehicles from U.S. territory. Competition for Taurus could
come from surplus Titan II launch vehicles, although a very limited inventory
remains. Japan's space agency has a launcher that directly competes with
Taurus in terms of launch capacity, but is considerably more expensive than the
Taurus. Competition to Pegasus and Taurus vehicles also exists in the form of
partial or secondary ("piggyback") payload capacity on larger boosters such as
the Ariane, Titan, Delta, Long March and Proton launch vehicles. While several
companies design and manufacture suborbital launch vehicles, Orbital's primary
competitors in this product line are Coleman Research Corp. and Space Vector
Corporation.
The Company's satellite systems and subsystems products compete with
products and services produced or provided by government entities and numerous
companies, including TRW Inc., CTA, Ball and Spectrum Astro, Inc. The
Company's airborne and ground-based electronics, data management systems,
defense-oriented avionics products and software systems and aviation systems
face competition from several established manufacturers. The Company's space
sensors and instruments face competition from a number of companies and
university research laboratories capable of designing and producing space
instruments. The Company's main competitors in the area of satellite ground
stations include Datron Systems Inc., Matra Marconi Space N.V. and Hughes-STX
Corp.
Magellan's marine, outdoor recreation and aviation GPS satellite-based
navigation products primarily face competition from Garmin International.
Magellan competes with a larger number of producers of satellite navigation and
communications products in its other markets. The Company believes that
Magellan's success will depend on its ability to continue to develop new
lower-cost and enhanced performance products to enter into and develop new
markets for GPS navigators and personal satellite communicators, and to develop
and strengthen sales and distribution channels for such products.
The ORBCOMM System will face competition from numerous existing and
potential alternative communications products and services provided by various
large and small companies, including sophisticated two-way satellite-based data
and voice communications services. For specific markets, the ORBCOMM System
may complement existing tower-based services such as one-way and two-way
paging, cellular data, specialized mobile radio and private networks. ORBIMAGE
may face competition from U.S. and foreign government entities and private
entities, such as EarthWatch Incorporated and Space Imaging L.P., that provide
or are seeking to provide satellite-based and other land remote imaging,
environmental monitoring and atmospheric sensing products.
<PAGE> 10
Many of the Company's competitors are larger and have substantially
greater resources than the Company. Furthermore, the possibility exists that
other domestic or foreign companies or governments, some with greater
experience in the space industry and greater financial resources than Orbital,
will seek to produce products or services that compete with those of the
Company. Any such foreign competitor could benefit from subsidies from, or
other protective measures by, its home country.
RESEARCH AND DEVELOPMENT
The Company expects to continue to invest in product-related research
and development, to conceive and develop new products and services, to enhance
existing products and services and to seek customer and, where appropriate,
strategic partner investments in these products and services. Orbital's
research and development expenses, excluding direct customer-funded
development, were approximately $22.2 million, $28.5 million and $17.3 million,
respectively, for the fiscal years ended December 31, 1996, 1995 and 1994.
PATENTS AND TRADEMARKS
Orbital relies, in part, on patents, trade secrets and know-how to
develop and maintain its competitive position and technological advantage. The
Company holds U.S. and foreign patents relating to the Pegasus vehicle and U.S.
patents relating to the ORBCOMM System as well as for other systems and
products produced by the Company. The Company also has various pending patent
applications relating to Pegasus and the ORBCOMM System along with other
products. Certain of the trademarks and service marks used in connection with
the Company's products and services have been registered with the U.S. Patent
and Trademark Office, the Canadian Intellectual Property Office and certain
other foreign trademark authorities.
COMPONENTS AND RAW MATERIALS
Orbital purchases a significant percentage of its product components,
including rocket propulsion motors, structural assemblies and electronic
equipment, from third parties. Orbital also occasionally obtains from the U.S.
Government parts and equipment that are used in the production of the Company's
products or in the provision of the Company's services. Orbital has not
experienced material difficulty in obtaining product components or necessary
parts and equipment and believes that alternative sources of supply would be
available, although increased costs and possible delays could be incurred in
securing alternative sources of supply. The Company's ability to launch its
Pegasus vehicle depends on the availability of an aircraft with the capability
of carrying and launching such space launch vehicles. Orbital entered into a
10-year lease in 1992 for the modified Lockheed L-1011 used for the air-launch
of the Pegasus vehicle.
U.S. GOVERNMENT CONTRACTS
During 1996, 1995 and 1994, approximately 45 percent, 40 percent and
45 percent, respectively, of the Company's total annual revenues were derived
from contracts with the U.S. Government and its agencies or from subcontracts
with the U.S. Government's prime contractors. Orbital's government contracts
are subject to regular audit and periodic reviews and may be modified,
increased, reduced or terminated in the event of changes in government
requirements or policies, Congressional appropriations and program progress and
scheduling. U.S. Government curtailment of expenditures for space research and
development and related products and services could have a material adverse
effect on Orbital's revenues and results from operations. Agencies within the
U.S. Government and commercial customers to which sales by the Company
accounted for ten percent or more of the Company's consolidated 1996 revenues
were NASA, DoD and ORBCOMM Global.
Orbital's major contracts with the U.S. Government fall into three
categories: firm fixed-price contracts, fixed-price incentive fee contracts and
cost-plus-fee contracts. Under firm fixed-price contracts, work performed and
<PAGE> 11
products shipped are paid for at a fixed price without adjustment for actual
costs incurred in connection with the contract. Risk of loss due to increased
cost, therefore, is borne by the Company, although some of this risk may be
passed on to subcontractors. Under fixed-price government contracts, Orbital
may receive progress payments, generally in an amount equal to between 80 and
95 percent of monthly costs, or it may receive milestone payments upon the
occurrence of certain program achievements, with final payments occurring at
project completion. Fixed-price incentive fee contracts provide for sharing by
the customer and the Company of unexpected costs incurred or savings realized
within specified limits, and may provide for adjustments in price depending on
actual contract performance other than costs. Costs in excess of the
negotiated maximum (ceiling) price and the risk of loss by reason of such
excess costs are borne by the Company, although some of this risk may be passed
on to subcontractors. Under a cost-plus-fee contract, Orbital recovers its
actual allowable costs incurred and receives a fee consisting of a base amount
that is fixed at the inception of the contract and/or an award amount that is
based on the Government's subjective evaluation of the contractor's performance
in terms of the criteria stated in the contract.
All Orbital's U.S. Government contracts and, in general, its
subcontracts with the U.S. Government's prime contractors provide that such
contracts may be terminated at will by the U.S. Government or the prime
contractor, respectively. Furthermore, any of these contracts may become
subject to a government-issued stop work order under which the Company is
required to suspend production. In the event of a termination at will, Orbital
is normally entitled to recognize the purchase price for delivered items,
reimbursement for allowable costs for work in process and an allowance for
reasonable profit thereon or adjustment for loss if completion of performance
would have resulted in a loss. The Company from time to time experiences
contract suspensions and terminations.
BACKLOG
Orbital's contract backlog is attributable to its space and ground
infrastructure systems business. The Company's firm backlog at December 31,
1996 and 1995 was approximately $710 million and $530 million, respectively.
As of December 31, 1996, approximately 60 percent of the Company's backlog was
with the U.S. Government and its agencies or from subcontracts with the U.S.
Government's prime contractors. Backlog consists of aggregate contract values
for firm product orders, excluding the portion previously included in operating
revenues on the basis of percentage of completion accounting, and including
government contract orders not yet funded in the amounts of approximately $265
million and $355 million as of December 31, 1996 and 1995, respectively.
Approximately $325 million of backlog is currently scheduled to be performed
beyond 1997. Backlog excludes unexercised and undefinitized contract options
having an aggregate potential contract value at December 31, 1996 of
approximately $1.4 billion.
EMPLOYEES
As of December 31, 1996, Orbital had approximately 3,000 full-time
permanent employees.
ITEM 2. PROPERTIES
In 1993, Orbital entered into a 12-year lease agreement for
approximately 100,000 square feet of office and engineering space in Dulles,
Virginia, which serves as its corporate headquarters. The Company owns an
approximate 30,000 square-foot satellite engineering and manufacturing facility
on land adjacent to the Dulles office facility and is constructing an addition
to such facility to provide additional office, engineering and manufacturing
space. Orbital also leases approximately 320,000 square feet of office,
engineering and manufacturing space in Germantown, Maryland; 305,000 square
feet of office, engineering and manufacturing space in Chandler, Arizona;
approximately 214,000 square feet of office and engineering space in Richmond,
British Columbia; approximately 135,000 square feet of office, engineering and
manufacturing space in Pomona, California; and approximately 75,000 square feet
of office, engineering and manufacturing space in San Dimas, California. The
Company leases or owns other smaller facilities, offices or manufacturing space
around the United States, including Huntsville, Alabama; Edwards Air Force
Base, California; Vandenberg Air Force Base, California and Greenbelt,
Maryland; as well as in other locations in Canada
<PAGE> 12
such as Ottawa, Ontario, as well as in England, Malaysia, Mexico and Australia.
Although completion of the Company's existing and pending contracts may in the
future require additional manufacturing capacity, Orbital believes that its
existing facilities are adequate for its near- and medium-term requirements.
ITEM 3. LEGAL PROCEEDINGS
On November 12, 1996, BTG USA Inc. filed a lawsuit against Magellan in
the U.S. District Court for the Eastern District of Pennsylvania, alleging that
Magellan's GPS products infringe a United States patent and seeking an
unspecified amount of monetary damages. The patent at issue expired in
November 1996. The Company believes the complaint has no merit, and the
Company is vigorously defending the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote of the Company's security
holders during the fourth quarter of 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each of
the Executive Officers of Orbital as of March 1, 1997. All Executive Officers
are elected annually and serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David W. Thompson 42 Chairman of the Board, President and Chief Executive Officer
Bruce W. Ferguson 42 Executive Vice President and General Manager/Communications
and Information Services Group
James R. Thompson 60 Executive Vice President and General Manager/Launch Systems Group
Michael D. Griffin 47 Executive Vice President and General Manager/Space Systems Group
Robert D. Strain 40 Executive Vice President and General Manager/Electronics and Sensor
Systems Group
Daniel E. Friedmann 40 Executive Vice President and General Manager/Systems Integration
and Software Group
Jeffrey V. Pirone 36 Senior Vice President and Chief Financial Officer
Antonio L. Elias 47 Senior Vice President and Chief Technical Officer
Leslie C. Seeman 44 Senior Vice President, General Counsel and Secretary
</TABLE>
David W. Thompson is a founder of Orbital and has been Chairman of the
Board, President and Chief Executive Officer of the Company since 1982. From
1981 to 1982, Mr. Thompson was Special Assistant to the President at Hughes
Aircraft Company's Missile Systems Group. From 1977 to 1979, Mr. Thompson was
employed by NASA at the Marshall Space Flight Center as a project manager and
engineer. Prior to that, he worked on the Space Shuttle's autopilot design at
the Charles Stark Draper Laboratory.
Bruce W. Ferguson is a founder of Orbital and has been Executive Vice
President and General Manager/Communications and Information Services Group
since October 1993 and a Director of the Company since 1982. Mr. Ferguson was
Executive Vice President and Chief Operating Officer of Orbital from 1989 to
October 1993 and Senior Vice President/Finance and Administration and General
Counsel of Orbital from 1985 to 1989.
James R. Thompson (who is not related to David W. Thompson) has been
Executive Vice President and General Manager/Launch Systems Group since October
1993 and a Director since January 1992. Mr. Thompson was Executive Vice
President and Chief Technical Officer of Orbital from 1991 to October 1993. He
was Deputy Administrator of NASA from 1989 to 1991. From 1986 until 1989, Mr.
Thompson was Director of NASA's Marshall
<PAGE> 13
Space Flight Center. He was Deputy Director for Technical Operations at
Princeton University's Plasma Physics Laboratory from 1983 through 1986.
Before that, he had a 20-year career with NASA at the Marshall Space Flight
Center.
Michael D. Griffin has been Executive Vice President/Space Systems
Group since January 1996. Dr. Griffin joined Orbital in August 1995 when he
was appointed Senior Vice President and Chief Technical Officer. From 1994 to
August 1995, he was Senior Vice President for Program Development at Space
Industries International. From September 1991 to January 1994, he served as
Chief Engineer of NASA and, from 1989 to 1991, was Deputy Director for
Technology at the Strategic Defense Initiative Organization.
Robert D. Strain has been Executive Vice President and General
Manager/Electronics and Sensor Systems Group since October 1996. From 1994
until 1996, he was Vice President for Finance and Manufacturing at Orbital.
Prior to that he served in a variety of senior-level financial positions with
Fairchild, including Vice President of Finance, Treasurer and Controller.
Daniel E. Friedmann has been Executive Vice President and General
Manager/Systems Integration and Software Group since January 1996. He
continues to serve as President and Chief Executive Officer of Orbital's
subsidiary, MDA, a position he has held since March 1995. From 1992 to March
1995, he served as Executive Vice President and Chief Operating Officer of MDA.
Between 1979 and 1992, he held a variety of positions at MDA, including serving
as Vice President of various divisions.
Jeffrey V. Pirone has been Senior Vice President and Chief Financial
Officer since August 1996, and had served as acting Chief Financial Officer as
of April 1996. From 1993 until March 1996, Mr. Pirone served as Vice President
and Controller of Orbital. Mr. Pirone joined Orbital as Controller in 1991,
and prior to that was a Senior Manager at KPMG Peat Marwick LLP.
Antonio L. Elias has been Senior Vice President and Chief Technical
Officer since January 1996. From May 1993 through December 1995 he was Senior
Vice President for Advanced Projects and was Senior Vice President/Space
Systems Division from 1990 to April 1993. He was Vice President/Engineering of
Orbital from 1989 to 1990 and was Chief Engineer from 1986 to 1989. From 1980
to 1986, Dr. Elias was an Assistant Professor of Aeronautics and Astronautics
at Massachusetts Institute of Technology.
Leslie C. Seeman has been Senior Vice President of the Company since
October 1993 and General Counsel and Secretary of the Company since 1989. From
1989 to October 1993, she was Vice President of the Company, and from 1987 to
1989, Ms. Seeman was Assistant General Counsel of Orbital. From 1984 to 1987,
she was General Counsel of Source Telecomputing Corporation, a
telecommunications company. Prior to that, she was an attorney at the law firm
of Wilmer, Cutler and Pickering.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
On March 12, 1997, there were 1,549 Orbital stockholders of record.
Additional information required by this Item is included under the captions
"Market Information" and "Corporate Information - Dividends" of the Annual
Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is included under the caption
"Selected Consolidated Financial Data" of the Annual Report and is incorporated
herein by reference.
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Annual Report and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in pages 38 through
57 of the Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included in Item 4A above and
under the caption "Election of Directors -- Directors to be Elected at the 1997
Annual Meeting, -- Directors Whose Terms Expire in 1998 and -- Directors Whose
Terms Expire in 1999" and "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Proxy Statement filed pursuant to Regulation 14A on or about
March 26, 1997 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the captions
"Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,"
"Indemnification Agreements," " Executive Employment Agreements and Termination
of Employment Agreements" and "Information Concerning the Board and Its
Committees" of the Proxy Statement filed pursuant to Regulation 14A on or about
March 26, 1997 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included under the caption
"Ownership of Common Stock" of the Proxy Statement filed pursuant to Regulation
14A on or about March 26, 1997 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included under the caption
"Related Transactions" of the Proxy Statement filed pursuant to Regulation 14A
on or about March 26, 1997 and is incorporated herein by reference.
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) Documents filed as part of this Report:
1. FINANCIAL STATEMENTS. The following financial
statements, together with the report of KPMG Peat
Marwick LLP, appearing in the portions of the Annual
Report, filed as Exhibit 13, are filed as a part of this
report:
A. Independent Auditors' Report (Annual Report page 37)
B. Consolidated Statements of Earnings (Annual Report
page 38)
C. Consolidated Balance Sheets (Annual Report page 39)
D. Consolidated Statements of Stockholders' Equity
(Annual Report page 40)
E. Consolidated Statements of Cash Flows (Annual
Report page 41)
F. Notes to Consolidated Financial Statements (Annual
Report pages 42 through 57)
2. FINANCIAL STATEMENTS OF 50 PERCENT OWNED SUBSIDIARY AND
FINANCIAL STATEMENT SCHEDULES. The financial statements
of ORBCOMM Global, L.P. will be filed by amendment
pursuant to Regulation S-X 3-09(b).
The following additional financial data are transmitted
with this report and should be read in conjunction with
the Consolidated Financial Statements in the Annual
Report. Schedules other than those listed below have
been omitted because they are inapplicable or are not
required.
Independent Auditors' Report on Consolidated
Financial Statement Schedule
II Valuation and Qualifying Accounts
3. EXHIBITS. A complete listing of exhibits required is
given in the Exhibit Index that precedes the exhibits
filed with this report.
(b) Reports on Form 8-K
On December 23, 1996, the Company filed a Current Report on Form 8-K
reporting, pursuant to Item 9, its sale of 1.2 million shares of
common stock on December 13, 1996, in a transaction exempt from
registration pursuant to Regulation S under the Securities Act.
(c) See Item 14(a)(3) of this report.
(d) See Item 14(a)(2) of this report.
<PAGE> 16
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: March 25, 1997 By /s/ David W. Thompson
-----------------------------------------
David W. Thompson, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
DATED: March 25, 1997
<TABLE>
<CAPTION>
Signature: Title:
<S> <C>
/s/ David W. Thompson Chairman of the Board, Principal Executive
- -------------------------------------------------------- Officer and Director
David W. Thompson
/s/ Jeffrey V. Pirone Senior Vice President, Finance and Chief
- -------------------------------------------------------- Financial Officer
Jeffrey V. Pirone
/s/ Michael P. Keegan Controller
- --------------------------------------------------------
Michael P. Keegan
/s/ Fred C. Alcorn Director
- --------------------------------------------------------
Fred C. Alcorn
/s/ Kelly H. Burke Director
- --------------------------------------------------------
Kelly H. Burke
/s/ Bruce W. Ferguson Director
- --------------------------------------------------------
Bruce W. Ferguson
/s/ Daniel J. Fink Director
- --------------------------------------------------------
Daniel J. Fink
/s/ Lennard A. Fisk Director
- --------------------------------------------------------
Lennard A. Fisk
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
/s/ Jack L. Kerrebrock Director
- --------------------------------------------------------
Jack L. Kerrebrock
/s/ Douglas S. Luke Director
- --------------------------------------------------------
Douglas S. Luke
/s/ John L. McLucas Director
- --------------------------------------------------------
John L. McLucas
/s/ Janice I. Obuchowski Director
- --------------------------------------------------------
Janice I. Obuchowski
/s/ Frank L. Salizzoni Director
- --------------------------------------------------------
Frank L. Salizzoni
/s/ Harrison H. Schmitt Director
- --------------------------------------------------------
Harrison H. Schmitt
/s/ James R. Thompson Director
- --------------------------------------------------------
James R. Thompson
/s/ Scott L. Webster Director
- --------------------------------------------------------
Scott L. Webster
</TABLE>
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Sciences Corporation
Under date of February 5, 1997, we reported on the consolidated balance sheets
of Orbital Sciences Corporation and subsidiaries (the "Company") as of December
31, 1996 and 1995, and the related statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996, as contained in the 1996 annual report to stockholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the Company's annual report on Form 10-K for the year 1996. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedule as listed in Item 14(a)2 in the Company's Form 10-K for the year 1996.
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statement schedule based on our audits.
In our opinion, based on our audits, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Washington, D.C.
February 5, 1997
<PAGE> 19
ORBITAL SCIENCES CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C
- -------------------------------------------------------------------------------------------------------------------
ADDITIONS
-----------------------------------------
CHARGED/
BALANCE AT CHARGED TO COSTS CREDITED TO
DESCRIPTION START OF PERIOD AND EXPENSES OTHER ACCOUNTS (1)
- -------------------------------------------------- ------------------- ------------------ -----------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts $ 587 $ 149 $ 42
Allowance for obsolete inventory 2,260 216 1,571
Allowance for unrecoverable investments - - 3,100
Deferred income tax valuation reserve 14,456 - 32,003
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts $ 778 $ 189 $ -
Allowance for obsolete inventory 3,936 580 -
Allowance for unrecoverable investments 3,100 - -
Deferred income tax valuation reserve 46,291 21,445 (2,695)
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ 773 $ 603 $ -
Allowance for obsolete inventory 3,778 667 685
Allowance for unrecoverable investments 1,100 - -
Deferred income tax valuation reserve 65,041 - -
<CAPTION>
COLUMN A COLUMN D COLUMN E
- -------------------------------------------------------------------------------------
BALANCE AT
DESCRIPTION DEDUCTIONS (2) END OF PERIOD
- -------------------------------------------------- ---------------- ----------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts $ - $ 778
Allowance for obsolete inventory (111) 3,936
Allowance for unrecoverable investments - 3,100
Deferred income tax valuation reserve (168) 46,291
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts $ (194) $ 773
Allowance for obsolete inventory (738) 3,778
Allowance for unrecoverable investments (2,000) 1,100
Deferred income tax valuation reserve - 65,041
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ (8) $ 1,368
Allowance for obsolete inventory (32) 5,098
Allowance for unrecoverable investments - 1,100
Deferred income tax valuation reserve (7,808) 57,233
</TABLE>
(1) - Amounts charged/credited to other accounts represent valuation and
qualifying accounts recorded pursuant to purchase business combinations
as described in Note (4) to the consolidated financial statements
incorporated by reference elsewhere herein, adjustments required to
recast pooled company's year end as described in Note (4) to the
consolidated financial statements incorporated by reference elsewhere
herein, and certain reclassifications of deferred tax accounts.
(2) - Deduction for revaluation of allowance account.
<PAGE> 20
EXHIBIT INDEX
The following exhibits are filed as part of this report. Where such
filing is made by incorporation by reference to a previously filed statement or
report, such statement or report is identified in parentheses. In addition,
the registrant has executed certain instruments reflecting long-term debt, the
total amount of which does not exceed 10% of the total assets of the registrant
and it subsidiaries on a consolidated basis. In accordance with section 4(iii)
of Item 601 under Regulation S-K, the registrant agrees to furnish to the
Securities and Exchange Commission copies of each instrument relating to such
long-term debt not otherwise filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
3.1 Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (File Number 333-08769) filed and effective on
July 25, 1996.
3.1.1 Certificate of Designation for the Company's Series A Special Preferred Voting Stock
(incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3
(File Number 333-08769) filed and effective on July 25, 1996).
3.2 By-Laws of Orbital Sciences Corporation, as amended on July 27, 1995 (incorporated by reference
to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995).
4 Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and
effective on April 24, 1990).
9 Voting and Exchange Trust Agreement between the Company, MacDonald Dettwiler Holdings Inc. and
State Street Bank and Trust Company (incorporated by reference to Exhibit 9 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.1 Amended and Restated Credit Agreement, dated as of September 27, 1994 among the Company,
Orbital Imaging Corporation and Fairchild Space and Defense Corporation, the Banks listed
therein, Morgan Guaranty Trust Company of New York, as Administrative Agent and J.P. Morgan
Delaware, as Collateral Agent (the "Credit Agreement") (incorporated by reference to Exhibit
10.6 to the Company's Report on Form 10-Q for the quarter ended September 30, 1994).
10.1.1 Amendment No. 1 to the Credit Agreement, dated as of October 26, 1994 (incorporated by
reference to Exhibit 10.6.1 to the Company's Annual Report on Form 10-K, for the fiscal year
dated December 31, 1995).
10.1.2 Amendment No. 2 to the Credit Agreement, dated as of July 5, 1995 (incorporated by reference to
Exhibit 10.6.3 to the Company's Report on Form 10-Q for the quarter ended June 30, 1995).
10.1.3 Amendment No. 3 to the Credit Agreement, dated as of August 23, 1995 (incorporated by reference
to Exhibit 10.3 to the Company's Report on Form 10-Q for the quarter ended September 30, 1995).
10.1.4 Amendment No. 4 to the Credit Agreement, dated as of November 15, 1995 (incorporated by
reference to Exhibit 10.1.3 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.1.5 Amendment No. 5 to the Credit Agreement , dated as of July 19, 1996 (incorporated by reference
to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1996).
10.1.6 Amendment No. 6 to the Credit Agreement (transmitted herewith).
10.2 Note Agreement, dated as of June 14, 1995 between the Corporation and The Northwestern Mutual
Life Insurance Company (the "NWML Note Agreement") (incorporated by reference to Exhibit 4.7.1
to the Company's Report on Form 10-Q for the quarter ended June 30, 1995).
10.2.1 1st Amendment to the NWML Note Agreement ,dated as of June 30, 1995, between the Corporation
and The Northwestern Mutual Life Insurance Company (incorporated by reference to the Company's
Report on Form 10-Q for the quarter ended September 30, 1995).
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
10.2.2 Second Amendment to the NWML Note Agreement, dated as of March 15, 1996 (incorporated by
reference to Exhibit 10.2.2 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.2.3 Third Amendment to NWML Note Agreement, dated as of July 13, 1996 (incorporated by reference to
Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended June 30, 1996).
10.3 Promissory Notes dated as of August 31, 1994 made by Fairchild Space and Defense Corporation
and Corporate Guaranty dated August 31, 1994 made by the Company (incorporated by reference to
Exhibit 10.7 to the Company's Report on Form 10-Q for the quarter ended September 30, 1994).
10.4 Security Agreement dated as of June 30, 1992 among the Company, J.P. Morgan Delaware, as
Collateral Agent and American Security Bank, N.A., as Audit Agent (incorporated by Reference to
Exhibit 10.6.1 to the Company's Report on Form 10-Q for the quarter ended September 30, 1994).
10.5 Master Security Agreement dated as of August 31, 1994 between Fairchild Space and Defense
Corporation and General Electric Capital Corporation (incorporated by reference to Exhibit 10.7
to the Company's Report on Form 10-Q for the Quarter ended September 30, 1994).
10.6 Orbital Sciences Corporation 1990 Stock Option Plan, restated as of April 27, 1995
(incorporated by reference to Exhibit 10.5.1 to the Company's Report on Form 10-Q for the
quarter ended June 30, 1995).*
10.7 Orbital Sciences Corporation 1990 Stock Option Plan for Non-Employee Directors, restated as of
April 27, 1995 (incorporated by reference to Exhibit 10.5.2 to the Company's Report on Form
10-Q for the quarter ended June 30, 1995).*
10.8 Orbital Communications Corporation Restated 1992 Stock Option Plan, restated as of September
12, 1995 (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.8.1 Amendment to Orbital Communications Corporation Restated 1992 Stock Option Plan, dated February
5, 1997 (transmitted herewith).*
10.9 Orbital Sciences Corporation 1995 Deferred Compensation Plan (incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995).*
10.10 Magellan Corporation 1996 Stock Option Plan (incorporated by reference to Exhibit 10.3 to the
Company's Report on Form 10-Q for the quarter ended June 30, 1996).*
10.11 Orbital Imaging Corporation 1996 Stock Option Plan (transmitted herewith).*
10.12 Form of Executive Employment Agreement entered into between the Company and Executive Officers
and certain other Officers of the Company (incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990
and effective on April 24, 1990).*
10.12.1 Performance Share Agreement dated October 23, 1996 between the Company and Mr. D. W. Thompson
(transmitted herewith).*
10.13 Form of Indemnification Agreement entered into between the Company and Directors, Executive
Officers and certain other Officers of the Company (incorporated by reference to Exhibit 10.18
to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9,
1990 and effective on April 24, 1990).*
10.13.1 Amendment dated October 22, 1992 to form of Indemnification Agreement entered into between the
Company and Directors, Executive Officers and certain other Officers of the Company
(incorporated by reference to Exhibit 19 to the Company's Report on Form 10-Q for the Quarter
Ended September 30, 1992).*
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
10.14 Participation Agreement dated August 20, 1992 by and between ITT Commercial Finance Corp. and
the Company, as amended through August 26, 1992 (incorporated by reference to Exhibit 19.14 to
Amendment No. 2 to the Company's Report on Form 10-Q for the Quarter Ended September 30, 1992).
10.15 Master Agreement, restated as of September 12, 1995, by and among the Company, OCC, Teleglobe
Inc. and Teleglobe Mobile Partners (incorporated by reference to Exhibit 10. to ORBCOMM Global
L.P.'s Registration Statement on Form S-4 (File Number 333-11149) filed on August 30, 1996.
10.16 Restated Agreement of Limited Partnership of ORBCOMM Global, L.P., dated as of September 12,
1995, between OCC and Teleglobe Mobile Partners (incorporated by reference to Exhibit 3.2 to
ORBCOMM Global L.P.'s Registration Statement on Form S-4 (File Number 333-11149) filed on
August 30, 1996.
10.16.1 Amendment No. 1 to Restated Agreement of Limited Partnership of ORBCOMM Global, L.P., dated
December 2, 1996 (transmitted herewith).
10.17 Restated Agreement of Limited Partnership of ORBCOMM USA, L.P., dated as of September 12, 1995
between Orbital Communications Corporation and ORBCOMM Global (incorporated by reference to
Exhibit 3.4. to ORBCOMM Global L.P.'s Registration Statement on Form S-4 (File Number
333-11149) filed on August 30, 1996.
10.18 Support Agreement between the Company and MacDonald, Dettwiler Holdings, Inc., dated November
17, 1995 (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995)
11 Statement re: Computation of Earnings Per Share (transmitted herewith).
13 Portions of the 1996 Annual Report to Stockholders (transmitted herewith).
21 Subsidiaries of the Company (transmitted herewith).
23.1 Consent of KPMG Peat Marwick LLP (transmitted herewith).
23.2 Consent of KPMG Peat Marwick LLP with respect to financial statements of ORBCOMM Global, L.P.
(to be filed by amendment).
27 Financial Data Schedule for year ended December 31, 1996 (such schedule is furnished for the
information of the Securities and Exchange Commission and is not to be deemed "filed" as part
of the Form 10-K, or otherwise subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934) (transmitted herewith).
99 Important Factors Regarding Forward-Looking Statements (transmitted herewith).
</TABLE>
- ----------------------
* Management Contract or Compensatory Plan or Arrangement.
<PAGE> 1
EXHIBIT 10.1.6
AMENDMENT NO. 6 TO CREDIT AGREEMENT
AMENDMENT No 6. dated as of December 19, 1996 among ORBITAL
SCIENCES CORPORATION (the "Company"), FAIRCHILD SPACE AND DEFENSE CORPORATION
("Fairchild"), the BANKS listed on the signature pages hereof, MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Administrative Agent (the "Administrative Agent")
and as successor to J.P. Morgan Delaware, as Collateral Agent.
W I T N E S S E T H:
WHEREAS, the parties hereto and Orbital Imaging Corporation
("Orbital Imaging") have heretofore entered into an Amended and Restated Credit
and Reimbursement Agreement dated as of September 27, 1994 (as amended from
time to time, the "Credit Agreement"); and
WHEREAS, Orbital Imaging is currently a Borrower and a
Guarantor under the Credit Agreement and is party to a Security Agreement dated
as of September 27, 1994 (the "Orbital Imaging Security Agreement") with the
Collateral Agent;
WHEREAS, the Company has asked the Banks, and the Banks are
willing, on the terms and conditions set forth below, to release Orbital
Imaging from its obligations as Borrower and Guarantor under the Credit
Agreement and to release the security interests created under the Orbital
Imaging Security Agreement;
WHEREAS, the parties hereto desire to amend the Credit
Agreement as set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein that is defined in the
Credit Agreement shall have the meaning assigned to such term in the Agreement.
Each reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other similar
reference contained in the Credit Agreement shall from and after the Effective
Date (as defined in Section 5 below) refer to the Credit Agreement as amended
hereby.
1
<PAGE> 2
SECTION 2. Removal of Orbital Imaging as a Borrower and
Guarantor.
(a) The definitions of "Borrower Subsidiaries", "Consolidated
Subsidiary" and "Subsidiary" set forth in Section 1.01 of the Credit Agreement
are amended to read in their entirety as follow:
"Borrower Subsidiaries" means Fairchild.
"Consolidated Subsidiary" means, at any date with respect to
any Person, any Subsidiary or other entity the accounts of which would
be consolidated with those of such Person in its consolidated
financial statements if such statements were prepared as of such date;
provided that in no event shall Orbital Imaging Corporation be a
"Subsidiary" of the Company.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly
owned by the Company (or if such term is used with reference to any
other Person, by such other Person); provided that in no event shall
Orbital Imaging Corporation be a "Subsidiary" of the Company.
(b) Orbital Imaging is hereby released from all of its obligations as
a Borrower and a Guarantor under the Credit Agreement and the other
Financing Documents. The release effected pursuant to the immediately
preceding sentence shall not release, discharge or otherwise affect in
any manner the obligations of the Company of Fairchild as Guarantors
pursuant to the Guaranty set forth in Article 9 of the Credit
Agreement of the obligations of Orbital Imaging under the Financing
Documents.
(c) The security interest created under the Orbital Imaging Security
Agreement are hereby terminated. the Banks hereby consent to such
termination and acknowledge that the Collateral Agent may execute and
deliver to Orbital Imaging such documents as Orbital Imaging shall
reasonably request to evidence such termination (including without
limitation UCC termination statements and notices of termination of
assignment with respect to any Eligible Government Contract which
constitute Collateral under the Orbital Imaging Security Agreement).
(d) On or promptly after the Effective Date, each Bank will cancel
its Notes of Orbital Imaging and return them to Orbital Imaging.
SECTION 3. Additional Permitted Investment. section 5.07 of
the Credit Agreement is amended to read in its entirety as follows:
SECTION 5.07. Investments. Neither the Company nor any
Subsidiary will make or acquire any Investment in any Person other
than:
2
<PAGE> 3
(a) Investments in any Borrower;
(b) Investments (other than (x) Investments described in
clause (a) above and (y) the ORBCOMM Global Guaranty) in an aggregate
principal amount not exceeding $5,000,000 in direct or indirect
Subsidiaries of the Company immediately after such Investment is made
or acquired;
(c) Temporary Cash Investments;
(d) Investments made by the Company, any of its Wholly-Owned
Subsidiaries or orbital Communications Corporation in an aggregate
principal amount not exceeding $75,000,000, in any entity or entities
through which the Company or any of its Wholly-Owned Subsidiaries will
develop, construct, operate and/or market the ORBCOMM low-earth
satellite communications system;
(e) Investments made by the Company or any of its
Wholly-Owned Subsidiaries, substantially on the terms described by the
Company to the Banks in the "Project Summary-American Space Lines"
dated June, 1995, copies of which have been delivered to each of the
Banks, in an aggregate principal amount not exceeding $73,000,000, in
any entity or entities through which the company or any of its
Wholly-Owned Subsidiaries will participate in the development,
construction, operation and/or marketing of the X-34 small reusable
launch vehicles;
(f) Investments made by the Company to acquire MacDonald,
Dettwiler and Associates Ltd. ("MDA"), substantially on the terms
described by the Company to the Banks in the draft of the combination
Agreement with respect to such acquisition, a copy of which has been
delivered to each of the Banks, up to an amount not in excess of the
value of 4,800,000 shares of common stock of the Company;
(g) Investments (other than Investments described in clause
(b) above) made or acquired or committed to be made or acquired by MDA
prior to the date MDA was acquired by the Company and listed on
Schedule III;
(h) the ORBCOMM Global Guaranty;
(i) Investments in Orbital Imaging Corporation (x) in
existence on December 1, 1996 and (y) in an aggregate principal amount
not exceeding $50,000,000 (in addition to Investments described in
clause (x)); and
(j) any Investment (other than any Investment in direct or
indirect Subsidiaries of the Company immediately after such Investment
is made or acquired) not otherwise permitted by the foregoing clauses
of this section 5.07 if, immediately after such Investment is made or
acquired, the aggregate net book value of all Investments permitted by
this clause (j) does not exceed 8% of Consolidated Tangible Net Worth.
3
<PAGE> 4
SECTION 4. New York Law. This Amendment shall be governed by
an construed in accordance with the laws of the State of New York.
SECTION 5. Counterparts; Effectiveness. This Amendment may
be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Amendment shall become effective
on the date (the "Effective Date") on which the Administrative Agent
shall have received:
(i) duly executed counterparts hereof signed by the Company,
Fairchild and the Banks (or, in the case of any part as to which an
executed counterpart shall not have been received, the Administrative
Agent shall have received telegraphic, telex or other written
confirmation from such party of execution of a counterpart hereof by
such party); and
(ii) Evidence satisfactory to it that the aggregate
outstanding principal amount of the Loans of Orbital Imaging shall
have been repaid in full, together with all accrued and unpaid
interest thereon.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first above written.
ORBITAL SCIENCES CORPORATION
By /s/ Jeffrey V. Pirone
-----------------------------------------
Title: Senior Vice President & Chief
Financial Officer
ORBITAL IMAGING CORPORATION
By /s/ Jeffrey V. Pirone
-----------------------------------------
Title: Senior Vice President & Chief
Financial Officer
4
<PAGE> 5
FAIRCHILD SPACE AND DEFENSE
CORPORATION
By /s/ Jeffrey V. Pirone
-----------------------------------------
Title: Senior Vice President & Chief
Financial Officer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Kevin J. O'Brien
----------------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ J.R. Trimble
-----------------------------------------
Title: Senior Relationship Manager
SIGNET BANK (formerly known as
Signet Bank/Virginia)
By /s/ R. Mark Swaan
--------------------------------------
Title: Assistant Vice President
NATIONSBANK, N.A.
By /s/ James W. Gaittens
---------------------------------------
Title: Vice President
5
<PAGE> 6
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By /s/ Catherine Moeser
---------------------------------------
Title: Assistant Vice President
THE SUMITOMO BANK, LIMITED
By /s/ Nancy Z. Reimann
--------------------------------------
Title: Vice President
By /s/ James L. Hogan
---------------------------------------
Title: Vice President & Manager
6
<PAGE> 1
EXHIBIT 10.8.1
ORBITAL COMMUNICATIONS CORPORATION 1992 STOCK OPTION PLAN
AMENDMENT DATED FEBRUARY 6, 1997
Article IV of the ORBITAL COMMUNICATIONS CORPORATION 1992 Stock Option
Plan shall be amended to increase the number of shares that may be optioned and
sold under the Plan by deleting the first sentence of Article IV and replacing
it with the following:
"Subject to the following provisions of this Article IV, the maximum
aggregate number of Shares that may be optioned an sold under the
Plan is 900,000."
<PAGE> 1
EXHIBIT 10.11
ORBITAL IMAGING CORPORATION
1996 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
The purpose of this 1996 Stock Option Plan is to promote the growth
and profitability of Orbital Imaging Corporation by providing, through the
ownership of Shares, incentives to attract and retain highly talented persons
to provide managerial and administrative services to the Company or other
entities in which the Company has a significant interest and to motivate such
persons to use their best effort on behalf of the Company.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following terms shall have the
meanings set forth in this Article II:
2.1. Accrued Installment. The term "Accrued Installment" shall
mean any vested installment of an Option.
2.2. Board. The term "Board" shall mean the Board of Directors of
the Company.
2.3. Committee. The term "Committee" shall mean a committee
appointed by the Board pursuant to Section 3.3 and consisting of at least two
members.
2.4. Company. The term "Company" shall mean Orbital Imaging
Corporation, a Delaware corporation, or any successor thereof.
2.5. Director. The term "Director" shall mean a member of the
Board, or a member of the board of directors of any Participating Company.
2.6. Effective Date. The term "Effective Date" shall mean November
15, 1996, the date of adoption by the Board.
2.7. Eligible Person. The term "Eligible Person" shall mean any
employee, officer, consultant or advisor of any Participating Company, but
shall not include any Director of any Participating Company who is not also an
employee, officer, consultant or advisor of a Participating Company.
2.8. Entitled Holder. The term "Entitled Holder" shall mean any
Optionee or any transferee thereof described in clause (ii) or (iii) of Section
6.7(a).
2.9. Exchange Act. The term "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended from time to time.
<PAGE> 2
2.10. Fair Market Value. The term "Fair Market Value" shall mean
the closing sale price of a Share on the national securities exchange on which
Shares are then principally traded or, if that measure of price is not
available, on a composite index of such exchanges or, if that measure of price
is not available, in a national market system for securities on the date in
question. In the event that there are no sales of Shares on any such exchange
or market on such date, the fair market value of a Share shall be deemed to be
the closing sales price on the next preceding day on which Shares were sold on
any such exchange or market. In the event that such Shares are not listed on
any such market or exchange on such date, a valuation of the fair market value
of a Share shall be made by the Board, which may in its discretion seek advice
from an independent appraiser or other appropriate financial professional
selected by the Board in its sole discretion and reasonably believed to be
competent to make such determination; provided, however, that at any time when
at least a majority of the voting power of the Company's capital stock is
beneficially owned by Orbital, any such determination of Fair Market Value
shall only be effective upon the approval of the Audit and Finance Committee of
the Board of Directors of Orbital, which approval shall not be unreasonably
withheld. Any determination of Fair Market Value made in accordance with this
Section 2.10 shall be conclusive and binding on the Company and all Optionees
and/or holders of Shares.
2.11. I.R.C. The term "I.R.C." shall mean the Internal Revenue Code
of 1986, as amended from time to time.
2.12. Incentive Stock Option. The term "Incentive Stock Option"
shall mean any Option intended to satisfy the requirements under I.R.C. Section
422(b) as an incentive stock option.
2.13. Nonstatutory Stock Option. The term "Nonstatutory Stock
Option" shall mean any Option not intended to qualify as an Incentive Stock
Option.
2.14. Option. The term "Option" shall mean an option to acquire
Shares granted under the Plan.
2.15. Option Shares. The term "Option Shares" shall mean, at any
time, all shares acquired upon exercise of Options and then held by Optionees.
2.16. Optionee. The term "Optionee" shall mean an Eligible Person
who has been granted Options.
2.17. Orbital. The term "Orbital" shall mean Orbital Sciences
Corporation, a Delaware corporation, or any successor thereof.
2.18. Orbital Common Stock. The term "Orbital Common Stock" shall
mean the common stock, $0.01 par value per share, of Orbital.
2.19. Parent Corporation. The term "Parent Corporation" shall mean
a "parent corporation" as defined in I.R.C. Section 424(e) and any partnership
or other entity that, if it were a corporation, would be a "parent corporation"
as defined in I.R.C. Section 424(e).
2
<PAGE> 3
2.20. Participating Company. The term "Participating Company" shall
mean the Company, any Parent Corporation of the Company, any Subsidiary
Corporation of the Company or its Parent Corporation, and Orbital Sciences
Corporation.
2.21. Person. The term "person" shall mean an individual,
corporation, partnership, association or other person or entity, or any group
of two or more of the foregoing that have agreed to act together.
2.22. Plan. The term "Plan" shall mean this 1996 Stock Option Plan.
2.23. Restricted Shareholder. The term "Restricted Shareholder"
shall mean an Optionee granted an Incentive Stock Option who, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company, with stock ownership determined in accordance with the attribution
rules of I.R.C. Section 424(d).
2.24. Securities Act. The term "Securities Act" shall mean the
Securities Act of 1933, as amended from time to time.
2.25. Shares. The term "Shares" shall mean shares of the Company's
authorized Common Stock, $0.01 par value, and may be unissued shares or
treasury shares or shares purchased for purposes of the Plan.
2.26. Subsidiary Corporation. The term "Subsidiary Corporation"
shall mean a "subsidiary corporation" as defined in I.R.C. Section 424(f) and
any partnership or other entity that, if it were a corporation, would be a
"subsidiary corporation" as defined in I.R.C. Section 424(f).
2.27. Terminating Transaction. The term "Terminating Transaction"
shall mean any of the following events: (a) the dissolution or liquidation of
the Company; (b) a reorganization, merger or consolidation of the Company with
one or more other corporations as a result of which the Company goes out of
existence or becomes a subsidiary of a corporation other than a corporation
that was a Participating Company immediately prior to such event (which shall
be deemed to have occurred only if such a corporation shall own, directly or
indirectly, eighty percent (80%) or more of the aggregate voting power of all
outstanding equity securities of the Company); (c) a sale of all or
substantially all of the Company's assets to a person or persons other than a
corporation that was a Participating Company immediately prior to such event;
or (d) a sale to one person (or two or more persons acting in concert), other
than to a corporation that was a Participating Company immediately prior to
such event, of equity securities of the Company representing eighty percent
(80%) or more of the aggregate voting power of all outstanding equity
securities of the Company.
2.28. Termination Date. The term "Termination Date" shall mean the
tenth anniversary of the Effective Date or, if earlier, the tenth anniversary
of the date the Plan is adopted by the Board.
3
<PAGE> 4
ARTICLE III
ADMINISTRATION OF PLAN
3.1. Administration by Board. Subject to Section 3.3, the Plan
shall be administered by the Board, which shall have authority to do everything
necessary or appropriate to administer the Plan. The Board shall have full and
absolute power and authority in its sole discretion to (a) determine which
Eligible Persons shall receive Options; (b) determine the time when Options
shall be granted; (c) determine the terms and conditions, not inconsistent with
the provisions of this Plan, of any Option granted hereunder, including whether
such Option is an Incentive Stock Option or a Nonstatutory Stock Option (except
that Incentive Stock Options may not be granted to any Eligible Person that is
not an employee or officer of the Company, any Parent Corporation of the
Company or any Subsidiary Corporation of the Company or its Parent
Corporation); (d) determine the number of Shares that may be issued upon
exercise of the Options; and (e) interpret the provisions of this Plan and of
any Option. At any time when at least a majority of the voting power of the
Company's capital stock is beneficially owned by Orbital, prior to each grant
of an Option and each other action taken with respect to the Plan (other than a
determination of Fair Market Value) the Board shall consult with the Human
Resources and Nominating Committee of Orbital's Board of Directors (except to
the extent otherwise authorized by such Human Resources and Nominating
Committee) with respect to such intended grant or other action.
3.2. Binding Authority. All decisions, determinations,
interpretations or other actions by the Board shall be final, conclusive and
binding on all Eligible Persons, Optionees, Participating Companies and any
successors-in-interest to such parties.
3.3. Administration by Committee. The Board may appoint a
Committee to administer the Plan and exercise all of the powers, authority and
discretion of the Board under the Plan, other than the power and authority to
amend and terminate the Plan under Section 7.1. The Committee shall report to
the Board the names of Eligible Persons granted Options, the number of Shares
covered by each Option, and the terms and conditions of each such Option.
ARTICLE IV
NUMBER OF SHARES AVAILABLE FOR GRANT
Subject to the following provisions of this Article IV, the maximum
aggregate number of Shares that may be optioned and sold under the Plan is
2,800,000. In the event that Options granted under the Plan shall, for any
reason, terminate, lapse, be forfeited or expire without being exercised, the
Shares subject to such unexercised Options shall again be available for the
granting of Options hereunder. In the event that Shares that were previously
issued by the Company, upon exercise of an Option, are reacquired by the
Company as part of the consideration received (in accordance with Section 6.5
hereof) upon the subsequent exercise of an Option or pursuant to Sections 8.3
and 8.4 hereof, such reacquired Shares shall again be available for the
granting of Options hereunder.
4
<PAGE> 5
ARTICLE V
TERM OF PLAN
The Plan shall become effective upon adoption by the Board, subject to
approval of the Plan on or before the first anniversary of the Effective Date
by the holders of a majority of the outstanding Shares. No option granted
prior to such approval shall be exercisable prior to such approval. The Plan
shall remain in full force and effect until the later of the Termination Date
or the date on which no Options are outstanding; provided, however, that no
Option may be granted hereunder after the Termination Date.
ARTICLE VI
OPTION TERMS
6.1. Form of Option Agreement. Any Option granted under the Plan
shall be evidenced by an agreement ("Option Agreement") in the form attached
hereto as Exhibit A for an Incentive Stock Option) or Exhibit B (for a
Nonstatutory Stock Option) or in such other form as the Board, in its
discretion, may, from time to time, approve. Any Option Agreement shall
contain such terms and conditions as the Board may deem necessary or
appropriate and that are not inconsistent with the provisions of the Plan.
6.2. Option Exercise Price. The option exercise price for Shares
to be issued under this Plan shall be determined by the Board in its sole
discretion, but in no event shall the option exercise price be less than the
Fair Market Value in the case of an Incentive Stock Option or less than
eighty-five percent (85%) of the Fair Market Value in the case of a
Nonstatutory Stock Option (or one hundred and ten percent (110%) of the Fair
Market Value in the case of an Option granted to a Restricted Shareholder).
6.3. Vesting and Exercise of Options. Subject to the limitations
set forth herein and/or in any applicable Option Agreement entered into
hereunder, Options shall vest and be exercisable in accordance with the rules
set forth in this Section 6.3:
(a) General. Subject to the other provisions of this
Section 6.3, Options shall vest and become exercisable at such time and in such
installments as the Board shall provide in each individual Option Agreement.
Unless otherwise provided in this Section 6.3, in Section 6.4 or in the Option
Agreement pursuant to which an Option is granted, an Option may be exercised
when Accrued Installments accrue as provided in such Option Agreement and at
any time thereafter until, and including, the day before the Option Termination
Date.
(b) Termination of Options. All installments of an
Option shall expire and terminate on such date as the Board shall determine
("Option Termination Date"), which in no event shall be later than ten (10)
years from the date such Option was granted (five (5) years in the case of an
Incentive Stock Option granted to a Restricted Shareholder).
(c) Termination of Employment Other than by Death,
Retirement or Disability. In the event that the employment of an Optionee with
a Participating Company is terminated for any reason (other than by death,
disability, retirement on or after reaching age 60), any installments under
5
<PAGE> 6
an Option held by such Optionee that have not accrued as of the employment
termination date shall expire and become unexercisable as of the employment
termination date. All Accrued Installments as of the employment termination
date shall expire and become unexercisable as of the earlier of (i) three (3)
months following the employment termination date; or (ii) the original Option
Termination Date. For purposes of the Plan, an Optionee who is an employee or
officer of any Participating Company shall not be deemed to have incurred a
termination of his employment so long as such Optionee is an employee or
officer of any Participating Company.
(d) Leave of Absence. An approved leave of absence shall
not constitute a termination of employment under the Plan. An approved leave
of absence shall mean an absence approved pursuant to the policy of a
Participating Company for military leave, sick leave, or other bona fide leave,
not to exceed ninety (90) days or, if longer, as long as the employee's right
to re-employment is guaranteed by contract, statute or the policy of a
Participating Company.
(e) Death, Disability or Retirement of Optionee. In the
event that the employment of an Optionee with a Participating Company is
terminated by reason of death, disability, or retirement on or after reaching
age sixty (60), any unexercised Accrued Installments of Options granted
hereunder to such Optionee shall expire and become unexercisable as of the
earlier of (i) the applicable Option Termination Date; or (ii) the first
anniversary of the date of termination of employment of such Optionee by reason
of the Optionee's death, disability or retirement. Any such Accrued
Installments of a deceased Optionee may be exercised prior to their expiration
only by the person or persons to whom the Optionee's Option rights pass by will
or the laws of descent and distribution. Any Option installments under such a
deceased, disabled or retired Optionee's Option that have not accrued as of the
date of the employee's termination of employment due to death, disability or
retirement shall expire and become unexercisable as of the employment
termination date.
6.4. Exercise of Options. An Option may be exercised as to all or
any portion of the Shares covered by an Accrued Installment of the Option, from
time to time during the applicable option period, except that an Option shall
not be exercisable with respect to fractions of a Share. Options may be
exercised, in whole or in part, by giving written notice of exercise to the
Company, which notice shall specify the number of Shares to be purchased and
shall be accompanied by payment in full of the purchase price in accordance
with Section 6.5. An Option shall be deemed exercised when such written notice
of exercise and payment have been received by the Company. No Shares shall be
issued until full payment has been made and the Optionee has satisfied such
other conditions as may be required by this Plan, as may be required by
applicable laws, rules or regulations, or as may be adopted or imposed by the
Board. Until the issuance of stock certificates, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to
Shares subject to an Option notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other rights for which the record
date is prior to the date the stock certificate is issued, except as provided
in Section 6.8(a).
6.5. Payment of Option Exercise Price. The entire option exercise
price shall be paid at the time the Option is exercised by check or such other
means as is deemed acceptable by the Board. Notwithstanding the foregoing, in
the discretion of the Board (which, in the case of an Incentive Stock Option,
shall be exercised only at the time of grant), an Optionee may elect to pay for
all or some of the
6
<PAGE> 7
Optionee's Shares with Shares (or, at any time when at least a majority of the
voting power of the Company's capital stock is owned by Orbital, shares of
Orbital Common Stock), subject to all restrictions and limitations of
applicable laws, rules and regulations and subject to the satisfaction of any
conditions the Board may impose, including, but not limited to, the making of
such representations and warranties and the providing of such other assurances
that the Board may require with respect to the Optionee's title to the Shares
used for payment of the exercise price. Such payment shall be made by delivery
of certificates representing Shares (or Orbital Common Stock), duly endorsed or
with a duly signed stock power attached, such Shares (or Orbital Common Stock)
to be valued at the Fair Market Value of such Shares (or Orbital Common Stock)
on the day immediately preceding the day notice of exercise is received by the
Company.
6.6. Options Not Transferable. Options granted under this Plan may
not be sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner, whether voluntarily, by operation of
law, pursuant to judicial process or otherwise, other than by will or the laws
of descent and distribution or pursuant to a qualified domestic relations
order, as defined under the I.R.C., and may be exercised during the lifetime of
an Optionee only by such Optionee. The person to whom the Option is granted
may, by delivering written notice to the Company in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.
6.7. Restrictions on Issuance or Transfer of Shares.
(a) Until such time as the Shares are registered under
the Exchange Act, no Shares issuable upon exercise of an Option shall be sold,
assigned, encumbered, pledged, hypothecated, given away or in any other manner
disposed of or transferred, whether voluntarily, by operation of law, pursuant
to judicial process or otherwise, except (i) to the Company pursuant to Section
8.4 hereof, (ii) pursuant to a qualified domestic relations order, as defined
under the I.R.C., or (iii) upon the death of the holder thereof, Shares may be
transferred and distributed by will or other instrument taking effect at death
or by the laws of descent and distribution to such holder's estate, executors,
administrators and personal representatives, and then to such holder's heirs,
legatees or distributees, provided that no such transfer shall be effective
until the recipient has delivered to the Company a written acknowledgment in
form and substance reasonably satisfactory to the Company that such Shares are
subject to the restrictions on disposition or transfer set forth in this
Section 6.7(a). Any attempted transfer of Shares not in accordance with this
Section 6.7(a) shall be null and void, and the Company shall not in any way
give effect to any such disposition or transfer.
(b) The Company shall use all reasonable efforts to
obtain all required permits, authorizations and approvals necessary for the
lawful issuance and sale of Shares hereunder. However, no Shares shall be
issued or delivered upon exercise of an Option unless there shall have been
compliance with all applicable requirements of the Securities Act, all
applicable listing or quotation requirements of any national securities
exchange or market on which Shares are then listed or quoted, and any other
requirement of law or of any regulatory body having jurisdiction over such
issuance and delivery. The inability of the Company to obtain any required
permits, authorizations or approvals necessary for the lawful issuance and sale
of any Shares hereunder on terms deemed reasonable by the Board shall relieve
the Company, the Board and any Committee of any liability in respect of the
7
<PAGE> 8
non-issuance or sale of such Shares for so long as such requisite permits,
authorizations or approvals shall not have been obtained.
(c) As a condition to the granting or exercise of any
Option, the Board may require the person receiving or exercising such Option to
make any representation and/or warranty to the Company as may be required under
any applicable law or regulation, including, but not limited to, a
representation that the Option and/or Shares are being acquired only for
investment and without any present intention to sell or distribute such Option
and/or Shares, if such a representation is required under the Securities Act or
any other applicable law, rule or regulation.
(d) The exercise of Options under the Plan is conditioned
on approval of the Plan by the vote or written consent of a majority of the
holders of outstanding Shares of the Company's Common Stock within twelve (12)
months of the adoption of the Plan. In the event such stockholder approval is
not obtained within such time period, any Options granted hereunder shall be
void.
6.8. Option Adjustments.
(a) If the outstanding Shares are increased, decreased,
changed into or exchanged for a different number or kind of shares of the
Company through reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split or other similar transaction, the
Board shall make a proportionate adjustment in the number or kind of shares and
the per-share option price thereof that may be issued in the aggregate and to
individual Optionees upon exercise of Options granted under the Plan; provided,
however, that no such adjustment need be made if, upon the advice of counsel,
the Board determines that such adjustment may result in the receipt of
federally taxable income to holders of Options granted hereunder or the holders
of Shares or other classes of the Company's securities.
(b) Upon the occurrence of a Terminating Transaction, as
of the effective date of such Terminating Transaction, the Plan and any then
outstanding Options not exercised prior to the effectiveness of such
Terminating Transaction (whether or not vested) shall terminate unless (i)
provision then is made in writing in connection with such transaction for the
continuance of the Plan and for the assumption of such Options, or for the
substitution for such Options of new options covering the securities of any
successor or survivor corporation in the Terminating Transaction or an
affiliate thereof, with such adjustments as the Board deems appropriate with
respect to the number and kind of securities and the per-share exercise price
under such substituted options, in which event the Plan and such outstanding
Options shall continue or be replaced, as the case may be, in the manner and
under the terms so provided; or (ii) the Board then otherwise provides in
writing for such adjustments as it deems appropriate in the terms and
conditions of the then outstanding Options (whether or not vested), including,
without limitation, (A) accelerating the vesting of outstanding Options and/or
(B) providing for the cancellation of Options and their automatic conversion
into the right to receive the securities or other properties which a holder of
Shares underlying such Options would have been entitled to receive upon the
consummation of such Terminating Transaction had such Shares been issued and
outstanding (net of the appropriate option exercise prices). If, pursuant to
the foregoing provisions of this paragraph (b), the Plan and the Options shall
terminate by reason of the occurrence of a Terminating Transaction without
provision for any of the action(s) described in clause (i) and/or (ii)
8
<PAGE> 9
hereof, then any Optionee holding outstanding Options shall have the right, at
such time immediately prior to the consummation of the Terminating Transaction
as the Board shall designate, to exercise such Optionee's Options to the full
extent not theretofore exercised, including any installments which have not yet
become Accrued Installments.
(c) Except to the extent required in order to retain the
qualification of an Option as an Incentive Stock Option under I.R.C. Section
422, to the maximum extent possible, any adjustments authorized under this
Section 6.8 with respect to any outstanding Options shall be made by means of
appropriate adjustments to the number of Shares (or other securities) and the
option exercise price therefor under the unexercised portions of such
outstanding Options, but without changing the aggregate exercise price
applicable to said unexercised portions. In all cases, the nature and extent
of adjustments under this Section 6.8 shall be determined by the Board in its
sole discretion, and any such determination as to what adjustments shall be
made, and the extent thereof, shall be final and binding. No fractional shares
of stock shall be issued under the Plan pursuant to any such adjustment.
6.9. Taxes. The Board shall make such provisions and take such
steps as it deems necessary or appropriate for the withholding of any federal,
state, local and other tax required by law to be withheld with respect to the
grant or exercise of an Option, or with respect to the disposition of Shares
acquired pursuant to the exercise of an Option, including, but without
limitation, the deduction of the amount of any such withholding tax from any
compensation or other amounts payable to an Optionee by any Participating
Company, or requiring an Optionee (or the Optionee's beneficiary or legal
representative), as a condition of granting or exercising an Option, to pay any
member of the Participating Companies any amount required to be withheld, or to
execute such other documents as the Board deems necessary or desirable in
connection with the satisfaction of any applicable withholding obligation;
provided, however, that the Optionee may elect, at such time and in such manner
as the Board may prescribe, to satisfy such withholding obligation by (i)
delivering to the Company Shares owned by such individual having a Fair Market
Value equal to such withholding obligation, or (ii) requesting that the Company
withhold from the Shares to be delivered upon the exercise a number of Shares
having a Fair Market Value equal to such withholding obligation.
6.10. Legends on Options and Stock Certificates. Each Option
Agreement and each certificate representing Shares acquired upon exercise of an
Option shall be endorsed with all legends, if any, required by applicable
federal and state securities laws to be placed on the Option Agreement and/or
the certificate, as well as legends setting forth the restrictions contained in
Section 6.7 hereof. The determination of which legends, if any, shall be
placed upon Stock Option Agreements and/or said Shares shall be made by the
Board in its sole discretion, and such decision shall be final and binding.
6.11. Employment Rights. Neither the adoption of the Plan nor the
grant of Options will confer upon any person any right to continued employment
with any Participating Company or affect in any way the right of any
Participating Company to terminate an employment relationship at any time.
Except as specifically provided by the Board in any particular case, the loss
of existing or potential profit in connection with Options granted under the
Plan will not constitute an element of damages in the event of termination of
an employment relationship.
9
<PAGE> 10
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
7.1. Board Authority. The Board may amend, alter and/or terminate
the Plan at any time; provided, however, that no change shall be effective
unless approved by the stockholders of the Company if such change would cause
the Option Plan to fail to meet the qualification requirements for Incentive
Stock Option Plans as set forth in the Internal Revenue Code.
7.2. Limitation on Board Authority. The Board may amend the terms
of any Option previously granted, prospectively or retroactively, and may amend
the Plan in accordance with the provisions of Section 7.1; provided, however,
that unless required by applicable law, rule or regulation, no amendment of the
Plan or of any Option Agreement shall affect, in a material and adverse manner,
Options granted prior to the date of any such amendment without the written
consent of any Optionee holding any such affected Options.
7.3. Substitution of Options. In the Board's discretion, the Board
may, with an Optionee's written consent, substitute Nonstatutory Stock Options
for outstanding Incentive Stock Options, and any such substitution shall not
constitute a new Option grant for the purposes of the Plan, and shall not
require a revaluation of the Option exercise price for the substituted Option.
Any such substitution may be implemented by an amendment to the applicable
Option Agreement or in such other manner as the Board in its discretion may
determine.
ARTICLE VIII
PURCHASE OF OPTION SHARES
8.1. General. Until such time as the Shares are registered under
the Exchange Act, the Company may, at its option and in its sole discretion,
offer to purchase any or all Option Shares (the "Payable Shares") at a price
per share equal to the Fair Market Value of a Share.
8.2. Valuation. If the Company decides to exercise the purchase
right, it shall cause the Fair Market Value of the Shares to be determined as
of the purchase offer date designated by the Board (the "Purchase Offer Date")
in accordance with Section 2.10 and shall notify each holder of Payable Shares
of such Fair Market Value.
8.3. Request for Repurchase. Within thirty (30) days after receipt
of the notice given under Section 8.2, each such holder of Shares may request
the Company to purchase all or any portion of his or her Payable Shares at a
price per share equal to such Fair Market Value by submitting to the Company an
irrevocable written notice of such request (except that such notice may be
revoked as specifically provided in Section 8.4). Within ninety (90) days
after the Purchase Offer Date the Company shall notify each requesting holder
of Payable Shares whether the Company will purchase all or a portion of the
Payable Shares requested to be so purchased on a closing date not more than
fifteen (15) days after the giving of such Company notice.
8.4. Purchase of Payable Shares. The closing for any purchase of
Payable Shares pursuant to Section 8.3 shall occur on the specified closing
date at the offices of the Company at 11:00 a.m. local
10
<PAGE> 11
time, or at such other time and place as the parties to such sale may mutually
agree. At the closing, the Optionee shall deliver to the Company a certificate
or certificates representing the Payable Shares to be purchased by the Company,
duly endorsed for transfer, free and clear of any lien or encumbrance, in
exchange for payment of the purchase price (i) by check, (ii) by delivery of
certificates representing shares of Orbital Common Stock that have a Fair
Market Value (determined in the manner provided in Section 2.10) as of the
business day preceding the closing equal to the purchase price of the Shares
and that are freely tradable (i.e., not "restricted securities" within the
meaning of Rule 144 under the Securities Act), with payment by check for any
amount that would otherwise be paid by a fractional share, (iii) by delivery of
a subordinated promissory note of the Company in the principal amount of the
purchase price of the Payable Shares, bearing interest at a fixed rate equal to
the then applicable prime rate (as published in The Wall Street Journal) plus
three percent (3.0%), providing for quarterly payments of interest and payment
of the full principal amount on the first anniversary of the date of issuance,
and containing provisions as approved by the Board in its sole discretion
providing for the subordination of such notes to such indebtedness, whether
then existing or thereafter created, of the Company as is specified by the
Board, including without limitation indebtedness for money borrowed or similar
indebtedness, or (iv) any combination of the foregoing; provided, however, that
no part of the purchase price for the Payable Shares may be paid by
subordinated promissory note unless the Board determines in good faith that
payment in cash or Orbital Common Stock would adversely affect the financial
condition or liquidity of the Company or adversely affect Orbital (including
without limitation because of a pending or contemplated offering or other
transaction); and provided, further, that if any portion of the purchase price
for the Payable Shares is to be paid by subordinated promissory note the
Optionee may revoke his or her request that the Payable Shares be purchased in
which case the Payable Shares shall remain held by the Optionee unaffected by
the original request. Any payment in Orbital Common Stock shall be subject to
all applicable federal and state securities laws restrictions and any other
applicable legal restrictions.
ARTICLE IX
GENERAL PROVISIONS
9.1. Availability of the Plan. A copy of the Plan shall be
delivered to the Secretary of the Company and shall be shown by the Secretary
to any Eligible Person making reasonable inquiry concerning the Plan.
9.2. Notice. Any notice or other communication required or
permitted to be given pursuant to the Plan or under any Option Agreement must
be in writing and may be given by mail and, if given by mail, shall be
determined to have been given and received five (5) days after such letter
containing such notice, properly addressed with postage prepaid, is deposited
in the United States mails and, if given otherwise than by mail, shall be
deemed to have been given when delivered to and received by the party to whom
addressed. Notice shall be given to Eligible Persons at their most recent
addresses shown in the Company's records. Notice to the Company shall be
addressed to the Company at the address of the Company's principal executive
offices, to the attention of the Secretary of the Company.
9.3. Title and Headings. Titles and headings of sections of the
Plan are for convenience of reference only and shall not affect the
construction of any provision of the Plan.
11
<PAGE> 12
9.4. Governing Law. The Plan shall be governed by, interpreted
under and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of Delaware,
applicable to agreements made and to be performed wholly within the State of
Delaware.
9.5. Proceeds. Proceeds from the sale of Shares pursuant to
Options shall constitute general funds of the Company.
9.6. Status of Optionee. Neither an Optionee nor any person to
whom an Option is transferred under Section 6.7 shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until such person has satisfied all
requirements for exercise of the Option pursuant to its terms.
9.7. Exculpation. No member of the Board or of the Human Resources
and Nominating Committee or Audit Committee of Orbital shall have any personal
liability to any Optionee and/or holder of Shares for any act or omission in
connection with this Plan (including without limitation any determination of
Fair Market Value), unless the Optionee and/or holder of Shares shall establish
that such determination, act or omission was not made in good faith.
9.8. Lockup Agreements. By its exercise of an Option, the holder
thereof agrees that upon the request of the managing underwriter of any
underwritten public offering of Shares such holder will enter into a "lockup
agreement" with such underwriter in form and substance reasonably satisfactory
to the Company and containing provisions generally preventing the sale of
Shares by such holder for a period beginning no earlier than seven days prior
to filing the registration statement for such offering and ending no later than
90 days (180 days in the case of the Company's initial public offering) after
the effectiveness of such registration statement.
12
<PAGE> 1
EXHIBIT 10.12.1
PERFORMANCE SHARE AGREEMENT
This Performance Share Agreement (the "Agreement") is made as of the
23rd day of October, 1996 by and between Orbital Sciences Corporation, a
Delaware corporation (the "Company"), and David W. Thompson, the President and
Chief Executive Officer of the Company (the "Executive").
WHEREAS, the Human Resources and Nominating Committee of the Board of
Directors has determined that it is desirable and in the best interests of the
Company to grant to the Executive the right to receive performance share units
(the "Performance Shares"), in order to provide the Executive with further
incentive to enhance the profitability and financial strength of the Company by
linking a component of the Executive's compensation to Company stock value,
which Performance Shares entitle the Executive to receive an annual bonus
measured by the increased value of the Company's common stock (the "Shares").
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto do hereby agree as follows:
1. GRANT OF PERFORMANCE SHARES. The Company hereby grants to the
Executive a total of 150,000 Performance Shares, which shall have the features
set forth below. The date of the grant of the Performance Shares is October
23, 1996, the date on which the grant was approved by the Committee.
a. Vesting. 50,000 Performance Shares shall vest
immediately, with an additional 50,000 vesting on each of January 30, 1997 and
1998.
b. Performance Bonus Calculation. Until they expire or
are terminated, each vested Performance Share shall entitle the Executive to
receive a bonus (the "Performance Bonus"). The Performance Bonus shall be
calculated on each of January 31, 1997, 1998 and 1999 with respect to the
aggregate number of Performance Shares that have vested as of January 1 of such
year. The Performance Bonus shall be equal to the increase, if any, from the
Base Price and Anniversary Valuation Price as illustrated below for each
applicable calendar year.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ANNIVERSARY
--------------------- -----------
SHARES BASE DATE BASE PRICE VALUATION PRICE
------ --------- ---------- ---------------
<S> <C> <C> <C>
50,000 January 30, 1996 $13.16 Fair Market Value
on January 30,
1997
100,000 January 30, 1997 Fair Market Value on Fair Market Value
January 30, 1997 on January 30,
1998
150,000 January 30, 1998 Fair Market Value on Fair Market Value
January 30, 1998 on January 30,
1999
</TABLE>
<PAGE> 2
c. Payment of Performance Bonus. The Performance Bonus,
if any, shall be paid in cash in the form of a credit to the Executive's
account under the Company's 1995 Deferred Compensation Plan. Such payment
shall be made as soon as practicable after calculation of the Performance
Bonus. Fifty percent (50%) of such credit shall vest immediately, with the
other 50% vesting on January 30 of the subsequent year.
d. Expiration. The Performance Shares shall expire on
February 1, 1999 unless this Agreement is terminated according to its terms at
an earlier time.
e. Fair Market Value. For purposes of this Agreement,
the Fair Market Value shall be equal to the average closing sales price of
Shares on the national securities exchange on which Shares are then principally
traded or, if that measure of price is not available, on a composite index of
such exchanges or, if that measure of price is not available, in a national
market system for securities, calculated for the 20 trading days immediately
prior to the applicable valuation date.
2. LIMITATION ON TRANSFER. The Performance Shares are not
transferable by the Executive.
3. PERFORMANCE SHARE ADJUSTMENTS.
a. Changes in Stock. If the outstanding Shares of the
Company are increased, decreased, changed into or exchanged for a different
number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse
stock split, upon authorization of the Board, a proportionate adjustment shall
be made in the number or kind of Shares subject to the Performance Shares, so
that the proportionate interest of the Executive immediately following such
event shall, to the extent practicable, be the same as immediately prior to
such event. Any such adjustment to Performance Shares shall include a
corresponding proportionate adjustment in the Base Price per share.
b. Reorganization in Which the Company is the Surviving
Corporation. Subject to subparagraph (c) below, if the Company shall be the
surviving corporation in any reorganization, merger or consolidation of the
Company with one or more other corporations, the Performance Shares shall
pertain to and apply to the securities to which a holder of the number of
Shares subject to the Performance Shares would have been entitled immediately
following such reorganization, merger or consolidation, with a corresponding
proportionate adjustment in the Base Price per Share so that the aggregate Base
Price thereafter shall be the same as the aggregate Base Price of the Shares
remaining subject to the Performance Shares immediately prior to such
reorganization, merger or consolidation.
c. Reorganization in Which the Company is Not the
Surviving Corporation or Sale of Assets or Stock. Upon the dissolution or
liquidation of the Company, or upon a merger, consolidation or reorganization
of the Company with one or more other corporations in which the Company is not
the surviving corporation, or upon a sale of substantially all the assets of
the Company to another corporation, or upon any transaction (including, without
limitation, a merger or reorganization in which the Company is the surviving
corporation) approved by the Board which results in any person or entity owning
80 percent or more of the combined voting power of all classes of stock of the
Company, unless provision is made in writing in connection with such
transaction for
2
<PAGE> 3
the assumption of this Agreement with such adjustments as the Board deems
appropriate with respect to the features, terms and conditions of the
Performance Shares, the Performance Shares hereunder shall immediately entitle
the Executive to a Performance Bonus in an amount equal to the difference
between the applicable Base Price and the Fair Market Value of the Shares on
the trading date immediately preceding the closing date of such Transaction,
and any unpaid portion of a previously vested Performance Bonus shall be
immediately paid.
d. Adjustments. In all cases, the nature and extent of
adjustments under this Section 3 shall be determined by the Committee in its
sole discretion, and any such determination as to what adjustments shall be
made, and the extent thereof, shall be final and binding.
4. WITHHOLDING OF TAXES. The parties hereto recognize that the
Company may be obligated to withhold federal, state and local income taxes and
Social Security taxes to the extent that the Executive realizes ordinary income
in connection with the receipt of the Performance Bonus pursuant to this
Agreement. The Executive agrees that the Company may withhold amounts needed
to cover such taxes from payments otherwise due and owing to the Executive.
5. DISCLAIMER OF RIGHTS. No provision in this Agreement shall be
construed to confer upon the Executive the right to be employed by the Company,
or to interfere in any way with the right and authority of the Company either
to increase or decrease the compensation of the Executive at any time, or to
terminate any employment or other relationship between the Executive and the
Company.
6. INTERPRETATION OF PERFORMANCE SHARE AGREEMENT. All decisions
and interpretations made by the Committee or the Board of Directors of the
Company with regard to any questions arising under this Agreement shall be
binding and conclusive on the Company and the Executive.
7. TERMINATION. Except as otherwise provided herein, this
Agreement shall terminate and all rights and obligations of the parties
hereunder shall be void and of no effect immediately upon the date the
Executive ceases to hold the office set forth in the first paragraph of this
Agreement or January 30, 2000, whichever occurs first. For purposes of this
Agreement, an approved leave of absence shall not be deemed an event resulting
in the Executive ceasing to hold such office under this Agreement. An approved
leave of absence shall mean an absence approved by the Committee for military
leave, sick leave, or other bona fide leave, as long as the Executive's right
to re-employment is guaranteed by contract, statute or the policy of the
Company.
8. MISCELLANEOUS
(a) Title and Headings. Titles and headings of sections
of the Agreement are for convenience of reference only and shall not affect the
construction of any provision of this Agreement.
(b) Governing Law. This Agreement shall be governed by,
interpreted under and construed and enforced in accordance with the internal
laws, and not the laws pertaining to conflicts or choice of laws, of the State
of Delaware.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this agreement as of
October 23, 1996.
ORBITAL SCIENCES CORPORATION
By: /s/ Jeffrey V. Pirone
---------------------
Jeffrey V. Pirone
Senior Vice President and Chief Financial Officer
/s/ David W. Thompson
- ---------------------
David W. Thompson
4
<PAGE> 1
EXHIBIT 10.16.1
AMENDMENT NO. 1 TO RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF ORBCOMM GLOBAL, L.P.
This Amendment No. 1 to Restated Agreement of Limited Partnership of
ORBCOMM Global, L.P. ("Amendment No. 1") is entered into as of this 2nd day of
December 1996 between Orbital Communications Corporation ("OCC") and Teleglobe
Mobile Partners ("Teleglobe Mobile").
WITNESSETH
WHEREAS, OCC and Teleglobe Mobile previously entered into the Restated
Agreement of Limited Partnership of ORBCOMM Global, L.P. dated as of September
12, 1995 (the "ORBCOMM Global Restated Partnership Agreement"); and
WHEREAS, OCC and Teleglobe Mobile wish to amend the ORBCOMM Global
Restated Partnership Agreement.
NOW THEREFORE, the parties agrees as follows:
SECTION 1 - AMENDMENTS
Section 3.6(b) of the ORBCOMM Global Restated Partnership Agreement is
hereby deleted in its entirety and replaced with the following:
(b) Stock Option Plan Loans. To the extent (i) the Partnership
has agreed to reimburse ORBCOMM for the costs paid by ORBCOMM pursuant
to Section 6.06 of the Orbital Communications Corporation 1992 Stock
Option Plan (including the payment by ORBCOMM of withholding taxes
with respect to the exercise of stock options) in purchasing stock
acquired by employees or former employees of ORBCOMM, the Partnership,
ORBCOMM USA or ORBCOMM International (the "Stock Option Plan Costs"),
(ii) the Partnership is permitted to reimburse ORBCOMM for the Stock
Option Plan Costs under the terms of the Indenture dated as of August
7, 1996 (the "Indenture") among ORBCOMM and ORBCOMM Global Capital
Corp., as Issuers, ORBCOMM USA, L.P., ORBCOMM International Partners,
L.P., Orbital Communications Corporation and Teleglobe Mobile
Partners, as Guarantors, and Marine Midland Bank, as Trustee, and
(iii) the Partnership has on hand sufficient cash or cash equivalents,
taking into account its short-term anticipated cash needs, to
reimburse ORBCOMM for the Stock Option Plan Costs, the Partnership
shall pay to ORBCOMM the Stock Option Plan Costs; provided however,
that in the event the Partnership requires additional capital
contributions, then ORBCOMM agrees to provide to the Partnership a
loan or loans in the amount of (i)(A) the Stock Option Plan Costs paid
by the Partnership with respect to options granted prior to the
<PAGE> 2
Restatement Date and (B) such Stock Option Plan Costs paid by the
Partnership prior to January 1, 2001 minus (ii) $500,000. Such loan
or loans shall bear interest at the rate of eight per cent (8%) per
annum and the principal and interest of such loan shall be repaid in
whole or in part at such time as there is Partnership cash on hand
available for distribution to the Partners, with the balance being
repaid in three equal annual installments commencing on January 1,
2001 and ending on January 1, 2003.
SECTION 2 - MISCELLANEOUS
(a) This Amendment No. 1 shall be construed in accordance with and
governed by the laws of the State of Delaware, without giving effect to the
provisions, policies or principles thereof related to choice or conflict of
laws.
(b) No changes to the ORBCOMM Global Restated Partnership
Agreement are authorized hereby except as otherwise specified in this Amendment
No. 1.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as
of the day and year first above written.
TELEGLOBE MOBILE PARTNERS
By: Teleglobe Mobile Investment Inc.,
its Managing Partner
By: /s/ Guthrie J. Stewart
-----------------------------------------
Name: Guthrie J. Stewart
Title: Chairman of the Board and Chief
Executive Officer
ORBITAL COMMUNICATIONS CORPORATION
By: /s/ Jeffrey V. Pirone
------------------------------------------
Name: Jeffrey V. Pirone
Title: Chief Financial Officer
- 2 -
<PAGE> 1
EXHIBIT 11.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------
ASSUMING
PRIMARY FULL DILUTION
----------------- ---------------
<S> <C> <C>
WEIGHTED AVERAGE OF OUTSTANDING
SHARES 31,181,207 31,181,207
COMMON EQUIVALENT SHARES:
OUTSTANDING STOCK OPTIONS 812,864 813,472
OTHER POTENTIALLY DILUTIVE SECURITIES:
CONVERTIBLE DEBENTURES (1) N/A N/A
----------------- ---------------
SHARES USED IN COMPUTING
NET INCOME PER SHARE 31,994,071 31,994,679
================= ===============
NET INCOME $4,484,083 $4,484,083
ADJUSTMENTS ASSUMING FULL DILUTION:
INTEREST EXPENSE, NET OF TAXES (1) N/A N/A
----------------- ---------------
NET INCOME $4,484,083 $4,484,083
================= ===============
NET INCOME PER SHARE $0.140 $0.140
DILUTION PERCENTAGE ASSUMING FULL DILUTION (2) N/A 0.0%
NET INCOME PER SHARE $0.14 $0.14
================= ===============
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------
ASSUMING
PRIMARY FULL DILUTION
------------------- -------------------
<S> <C> <C>
WEIGHTED AVERAGE OF OUTSTANDING
SHARES 28,472,608 28,472,608
COMMON EQUIVALENT SHARES:
OUTSTANDING STOCK OPTIONS 664,753 747,228
OTHER POTENTIALLY DILUTIVE SECURITIES:
CONVERTIBLE DEBENTURES (1) N/A 2,396,283
------------------- -------------------
SHARES USED IN COMPUTING
NET INCOME PER SHARE 29,137,361 31,616,119
=================== ===================
NET INCOME $15,906,916 $15,906,916
ADJUSTMENTS ASSUMING FULL DILUTION:
INTEREST EXPENSE, NET OF TAXES (1) N/A 2,357,438
------------------- -------------------
NET INCOME $15,906,916 $18,264,354
=================== ===================
NET INCOME PER SHARE $0.546 $0.578
DILUTION PERCENTAGE ASSUMING FULL DILUTION (2) N/A -5.8%
NET INCOME PER SHARE $0.55 $0.55
=================== ===================
</TABLE>
NOTES:
(1) - THE CONVERTIBLE DEBENTURES WERE CONVERTED TO COMMON STOCK ON AUGUST
14, 1996. ACCORDINGLY, THE EFFECTS OF AN ASSUMED CONVERSION ARE
INCLUDED IN YEAR-TO-DATE EARNINGS PER SHARE ONLY THROUGH THAT DATE.
(2) - PROVIDED THAT DILUTION IS GREATER THAN 3%, THE CONVERTIBLE DEBENTURES
ARE CONSIDERED DILUTIVE IN THE CALCULATION AND PRESENTATION OF PER
SHARE DATA.
NOTE - SUBSIDIARY STOCK OPTIONS THAT ENABLE HOLDERS TO OBTAIN SUBSIDIARY'S
COMMON STOCK ARE INCLUDED IN COMPUTING THE SUBSIDIARY'S EARNINGS PER
SHARE, TO THE EXTENT DILUTIVE. THOSE EARNINGS PER SHARE DATA ARE
INCLUDED IN THE COMPANY'S PER SHARE COMPUTATIONS, TO THE EXTENT
DILUTIVE, BASED ON THE COMPANY'S HOLDINGS OF THE SUBSIDIARY'S COMMON
STOCK. FOR THE THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31,
1996, ALL SUCH SUBSIDIARY STOCK OPTIONS WERE ANTI-DILUTIVE.
<PAGE> 1
FINANCIAL
INFORMATION
INDEX TO FINANCIAL REVIEW AND DISCUSSION
Selected Consolidated Financial Data page 30
Management's Discussion and Analysis of Financial
Condition and Results of Operations page 31
Independent Auditors' Report page 37
Consolidated Statements of Earnings page 38
Consolidated Balance Sheets page 39
Consolidated Statements of Stockholders' Equity page 40
Consolidated Statements of Cash Flows page 41
Notes to Consolidated Financial Statements page 42
MARKET INFORMATION
The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol ORBI. The range of high and low closing sales prices of Orbital Common
Stock for 1994 through 1996, as reported on the Nasdaq Stock Market, was as
follows:
<TABLE>
<CAPTION>
1996 HIGH LOW
- ------------------------------------------------------------
<S> <C> <C>
Fourth Quarter $21 7/8 $16 5/8
Third Quarter $20 $16 3/8
Second Quarter $19 7/8 $13 1/4
First Quarter $16 1/8 $12
<CAPTION>
1995 HIGH LOW
- ------------------------------------------------------------
<S> <C> <C>
Fourth Quarter $16 5/8 $12 3/16
Third Quarter $19 1/4 $16
Second Quarter $22 $15 1/2
First Quarter $20 1/2 $16 1/2
<CAPTION>
1994 HIGH LOW
- ------------------------------------------------------------
<S> <C> <C>
Fourth Quarter $22 1/2 $15
Third Quarter $18 1/2 $14 1/2
Second Quarter $24 1/2 $14
First Quarter $26 1/2 $15 1/4
</TABLE>
29 ----------- ORBITAL
<PAGE> 2
SELECTED CONSOLIDATED
FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 461,435 $ 364,320 $ 301,576 $ 300,184 $ 273,171
Costs of goods sold 336,261 268,016 216,417 228,289 207,834
-----------------------------------------------------------------------
Gross profit 125,174 96,304 85,159 71,895 65,337
Research and development expenses 22,179 28,512 17,259 19,703 15,565
Selling, general and administrative expenses 76,019 63,427 53,165 38,270 41,723
Amortization of excess of purchase price
over net assets acquired 3,134 3,221 2,360 1,634 1,606
Net investment income (expense) (1,123) 639 (244) (44) 860
Equity in losses of affiliates (6,454) (759) (1,264) (2,436) --
Non-controlling interests in losses of
consolidated subsidiaries 1,473 427 -- -- --
Acquisition expenses -- (3,441) (503) -- --
-----------------------------------------------------------------------
Income (loss) before provision (benefit) for income
taxes and cumulative effect of accounting change 17,738 (1,990) 10,364 9,808 7,303
Provision (benefit) for income taxes 1,831 (1,302) 2,744 2,403 1,997
-----------------------------------------------------------------------
Income (loss) before cumulative effect of
accounting change $ 15,907 (688) 7,620 7,405 5,306
Cumulative effect of accounting
change, net of taxes -- (4,160) -- 200 --
-----------------------------------------------------------------------
Net income (loss) $ 15,907 $ (4,848) $ 7,620) $ 7,605 $ 5,306
=======================================================================
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE (1):
Income (loss) before cumulative effect of
accounting change $ 0.55 $ (0.03) $ 0.33 $ 0.40 $ 0.29
Cumulative effect of accounting change -- (0.16) -- 0.01 --
-----------------------------------------------------------------------
$ 0.55 $ (0.19) $ 0.33 $ 0.41 $ 0.29
=======================================================================
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON AND COMMON EQUIVALENT SHARE 29,137,361 26,207,746 23,191,553 18,728,980 18,492,059
=======================================================================
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING
FULL DILUTION (2):
Income (loss) before cumulative effect of
accounting change $ 0.55 $ (0.03) $ 0.32 $ 0.36 $ 0.29
Cumulative effect of accounting change -- (0.16) -- 0.01 --
-----------------------------------------------------------------------
$ 0.55 $ (0.19) $ 0.32 $ 0.37 $ 0.29
=======================================================================
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, ASSUMING FULL DILUTION 31,616,119 30,103,858 27,309,336 22,343,402 18,492,059
=======================================================================
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments $ 32,686 $ 35,030 $ 40,345 $ 85,347 $ 16,019
Net working capital 83,673 87,553 57,449 92,036 41,527
Total assets 504,712 466,908 441,042 367,979 212,151
Short-term borrowings 38,519 11,907 28,977 15,793 6,377
Long-term obligations 33,076 96,990 86,068 73,165 10,818
Stockholders' equity $ 330,502 $ 238,908 $ 206,943 $ 169,389 $ 111,687
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1/ Net income (loss) per common and common equivalent share is calculated
using the weighted average number of shares and dilutive equivalent shares
outstanding during the periods.
2/ Net income (loss) per common share, assuming full dilution, is calculated
using the weighted average number of shares and dilutive equivalent shares
outstanding during the periods, plus the effect of an assumed conversion
of the Company's convertible subordinated debentures prior to their actual
conversion in 1996.
30 ----------- ORBITAL
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
A significant portion of the company's space and ground infrastructure systems
revenues are generated under long-term contracts with various agencies of the
U.S. Government, various foreign governments and commercial customers. Orbital
recognizes revenues on long-term contracts using the percentage of completion
method of accounting, under which revenue and profit are recognized based on
actual costs incurred in relation to total estimated costs to complete the
contract or specific delivery terms and conditions. To the extent that
estimated costs of completion are adjusted, revenue recognized from a
particular contract will be affected in the period of the adjustment.
The company is accounting for its 50% investment in ORBCOMM Global, L.P.
("ORBCOMM Global") using the equity method of accounting. In accordance with
the equity method of accounting, Orbital consolidates 100% of the revenues
earned and costs incurred on sales of products and services to ORBCOMM Global.
The company also recognizes as equity in earnings (losses) of affiliates its
proportionate share of ORBCOMM Global's profits and losses. During the
construction phase of the ORBCOMM system, ORBCOMM Global is capitalizing
substantially all system construction costs, including amounts paid to Orbital.
To the extent ORBCOMM Global capitalizes its purchases from Orbital, the
company eliminates as equity in earnings (losses) of affiliates 50% of its
profits and losses from those sales. Orbital controls, and therefore
consolidates the accounts of, ORBCOMM USA, L.P., a partnership that markets
ORBCOMM system services in the United States.
In 1995, the company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" ("SFAS 121"). The cumulative effect of adopting SFAS 121 on prior
years' earnings, relating to the impairment in the carrying amount of certain
assets to be disposed of that supported the company's orbit transfer vehicle
product line, was approximately $4,160,000 and is reported in the 1995
consolidated statement of earnings.
Statements included in this discussion and in the Annual Report relating to
future revenues, sales, expenses, growth rates, net income, new business,
operational performance, schedules, sources and uses of funds, and the level of
the company's investment in satellite imaging projects and the ORBCOMM business
are forward-looking statements that involve risks and uncertainties. Factors
that may cause the actual results, performance or achievements of the company
to differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements include, among other
things, general economic and business conditions, launch success, product
performance, availability of required capital, market acceptance of new
products and technologies and other factors more fully described in Exhibit 99
to the company's Report on Form 10-K for the year ended December 31, 1996.
SIGNIFICANT RECENT ACQUISITIONS
Orbital acquired MacDonald, Dettwiler and Associates, Ltd. ("MDA") on November
17, 1995 and Magellan Corporation ("Magellan") on December 29, 1994. Both
transactions were accounted for using the pooling of interests method of
accounting for business combinations. Orbital's historical financial
information has been restated to effect the pooling of interests with MDA and
Magellan as of the earliest period presented. Orbital incurred transaction
expenses of approximately $3,400,000 and $500,000 in 1995 and 1994,
respectively, related to these business combinations.
On August 11, 1994, Orbital acquired Fairchild Space and Defense Corporation
("Fairchild"), a subsidiary of Matra Aerospace, Inc., in a transaction
accounted for as a purchase business combination. Fairchild's results of
operations for the nineteen-week period ended December 31, 1994 have been
included in Orbital's consolidated results of operations for the year ended
December 31, 1994.
The following table shows the company's revenues, gross profits and margins, by
major product category within each business sector, for each of the three years
ended December 31, 1996, 1995 and 1994:
31 ----------- ORBITAL
<PAGE> 4
MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- ----------------------------- -------------------------------
GROSS GROSS GROSS
(DOLLARS IN THOUSANDS) REVENUES PROFIT MARGIN REVENUES PROFIT MARGIN REVENUES PROFIT MARGIN
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPACE AND GROUND
INFRASTRUCTURE SYSTEMS $ 388,814 $ 101,867 26.2% $ 300,439 $ 72,820 24.2% $ 252,905 $ 61,239 24.2%
Launch Vehicles 108,478 23,356 21.5 71,826 12,469 17.4 84,970 16,954 20.0
Satellites 105,148 22,406 21.3 83,156 12,062 14.5 35,032 9,231 26.4
Electronics and
Sensor Systems 92,070 26,608 28.9 71,983 25,419 35.3 53,273 14,775 27.7
Ground Systems
and Software 83,118 29,497 35.5 73,474 22,870 31.1 79,630 20,279 25.5
SATELLITE ACCESS PRODUCTS 71,188 25,134 35.3 52,681 20,235 38.4 38,517 17,802 46.2
SATELLITE-DELIVERED SERVICES 1,433 (1,827 N/A 11,200 3,249 29.0 10,154 6,118 60.3
--------------------------------------------------------------------------------------------------
CONSOLIDATED TOTALS $ 461,435 $ 125,174 27.1% $ 364,320 $ 96,304 26.4% $ 301,576 $ 85,159 28.2%
================================================================================================================================
</TABLE>
RESULTS OF OPERATIONS
Revenues
Orbital's consolidated revenues for 1996, 1995 and 1994 were $461,435,000,
$364,320,000 and $301,576,000, respectively. Revenues include sales to ORBCOMM
Global of approximately $47,215,000, $49,187,000 and $30,048,000 in 1996, 1995
and 1994, respectively.
Space and Ground Infrastructure Systems. Revenues from the company's space and
ground infrastructure systems increased to $388,814,000 in 1996, from
$300,439,000 in 1995 and $252,905,000 in 1994.
Revenues from the company's launch vehicles increased to $108,478,000 in 1996
from $71,826,000 in 1995. Launch vehicle revenues were $84,970,000 in 1994. The
decrease in revenues from 1994 to 1995 is primarily attributable to significant
delays in production of the company's Pegasus space launch vehicle as a result
of the June 1994 and June 1995 Pegasus XL launch failures. The significant
increase in revenues in 1996 is attributable to revenues generated from the
resumption of production and launch of the Pegasus XL launch vehicle and from
work performed under new and existing contracts for the company's Taurus launch
vehicle. During 1996, Orbital carried out four successful Pegasus launches. A
fifth Pegasus launch, which occurred in November 1996, delivered two NASA
satellites to their targeted orbits, but the two satellites failed to separate
from the launch vehicle. The company believes that the problem was caused by a
faulty electrical power system on the Pegasus launcher that failed to activate
certain satellite separation mechanisms, and does not anticipate significant
further launch delays as a result of this problem.
Orbital expects launch vehicle revenues to increase in 1997 as a result of
orbital and suborbital launch vehicle orders received in 1996 and early 1997.
Additionally, the company anticipates that the X-34 reusable launch vehicle
program, which began generating revenues in the latter half of 1996, will
contribute significantly more revenues in 1997.
Revenues from sales of satellites increased to $105,148,000 in 1996, from
$83,156,000 in 1995 and $35,032,000 in 1994. The increase in satellite revenues
in 1995 as compared to 1994 is primarily attributable to a full year's sales of
satellites following the 1994 acquisition of Fairchild. The increase in 1996 is
primarily attributable to additional revenues generated from new satellite
orders from commercial and government customers received in late 1995 and in
1996. The company expects its satellite revenues to continue to increase in
1997 based on continued work on existing satellite contracts.
Electronics and sensor systems revenues increased to $92,070,000 in 1996, from
$71,983,000 in 1995 and $53,273,000 in 1994. The increase in 1995 as compared
to 1994 is primarily due to a full year's sales of defense
32 ----------- ORBITAL
<PAGE> 5
electronics products following the 1994 acquisition of Fairchild offset, in
part, by a decrease in space sensors and instruments sales. The increase in
1996 revenues is primarily attributable to work performed on defense
electronics and intelligent transportation management systems orders received
in 1995 and 1996. The company expects 1997 revenues to increase slightly from
1996 levels.
Ground systems and software revenues were $83,118,000, $73,474,000 and
$79,630,000 in 1996, 1995 and 1994, respectively. Sales of satellite ground
systems declined in 1995 due to a decrease in worldwide demand for ground
system installations; however, the number of installations and upgrades
increased in 1996, resulting in greater revenues. In 1996, Orbital also sold
substantially all of the assets of a software-related business, generating net
revenues of approximately $3,600,000. The company received several new
satellite ground system orders in the fourth quarter of 1996, and therefore
expects 1997 ground systems and software revenues to increase slightly from
1996 levels.
Satellite Access Products. Revenues from sales of satellite navigation and
communications products were $71,188,000 for 1996, as compared to $52,681,000
in 1995 and $38,517,000 in 1994. The year-to-year increases are due to
significant growth in the number of Global Positioning System ("GPS") products
sold offset, in part, by lower average unit sales prices. The company expects
unit sales of satellite navigation and communications products to continue to
increase in 1997, although at lower than historical growth rates and at lower
average unit prices.
Satellite-Delivered Services. The company's start-up satellite-delivered
services businesses generated revenues of $1,433,000, $11,200,000 and
$10,154,000 for 1996, 1995 and 1994, respectively. Satellite-delivered services
revenues for 1996 were primarily attributable to sales of satellite imagery to
government and commercial customers by the company's subsidiary, Orbital
Imaging Corporation ("ORBIMAGE"), as well as modest sales of ORBCOMM services
in the United States. Revenues in 1995 and 1994 primarily represented sales of
ground stations and network software to ORBCOMM Global; no such sales were made
in 1996. In 1997, the company expects to generate additional domestic sales of
ORBCOMM services as additional satellites are launched and become commercially
operational. The company also expects ORBIMAGE's second imaging satellite,
OrbView-2, to begin to provide commercial service in the second half of 1997.
Such satellite-delivered services revenues are contingent on the timeliness and
operational success of those missions planned for 1997.
Costs of Goods Sold
Costs of goods sold include the costs of personnel, materials, subcontracts and
overhead related to commercial products and under the company's various
development and production contracts. Orbital's costs of goods sold for 1996,
1995 and 1994 were $336,261,000 (72.9% of revenues), $268,016,000 (73.6% of
revenues) and $216,417,000 (71.8% of revenues), respectively. The reduction in
costs of goods sold as a percentage of revenues in 1996 is attributable in part
to resumption of production of the company's Pegasus space launch vehicle.
Other contributing factors include increased profit margins on certain
satellite and ground systems contracts offset, in part, by lower average unit
sales prices of satellite navigation products. Costs incurred in 1996 as a
result of the November Pegasus launch anomaly and certain other unanticipated
contract cost increases were offset, in part, by the use of existing
contingency reserves. There can be no assurance that the company will have
sufficient contingency reserves to cover any future launch vehicle or other
contract cost increases. The increase in costs of goods sold as a percentage of
revenues in 1995 as compared to 1994 is attributable in part to approximately
$2,100,000 of cost increases on the Pegasus program resulting from two earlier
launch failures, and unanticipated cost increases on certain satellite
programs. Assuming continued successful operational performance, Orbital
expects that its costs of goods sold as a percentage of sales in 1997 will be
slightly lower than that achieved in 1996.
Research and Development Expenses
Research and development expenses represent Orbital's self-funded product
development activities, and exclude direct customer-funded development.
Research and development expenses during 1996, 1995 and 1994 were $22,179,000,
$28,512,000 and $17,259,000, respectively. Research and development spending
during 1996 relates primarily to the development of new or improved
33 ----------- ORBITAL
<PAGE> 6
MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
navigation and communications access products, improved launch vehicles,
including enhancements to the Taurus launch vehicle, and new satellite
initiatives. Research and development spending during 1995 and 1994 reflected
Orbital's continued development of its Pegasus XL, including certain failure
review and resolution efforts of approximately $7,900,000 in 1995. Research and
development expenses in 1995 included $3,000,000 of costs related to the
termination of an advanced reusable launch vehicle development program. The
company expects its 1997 research and development expenditures to increase
slightly in absolute dollars but to decrease as a percentage of revenues.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include the costs of marketing,
advertising, promotion and other selling expenses as well as the costs of the
finance, administrative and general management functions of the company.
Selling, general and administrative expenses for 1996, 1995 and 1994 were
$76,019,000 (16.5% of revenues), $63,427,000 (17.4% of revenues) and
$53,165,000 (17.6% of revenues), respectively. The continued decrease in
selling, general and administrative expenses as a percentage of revenues in
1996 is primarily attributable to significant growth in space and ground
infrastructure revenues, along with only modest growth in selling, general and
administrative expenses attributable to those product lines offset, in part, by
increased costs from expanded marketing efforts related to the company's
satellite-delivered services start-up businesses. The company expects selling,
general and administrative expenses as a percentage of revenues to decrease
slightly in 1997, even with continued expansion of ORBCOMM and ORBIMAGE
marketing efforts.
Investment Income and Interest Expense
Net investment income (expense) was ($1,123,000), $639,000 and ($244,000) for
1996, 1995 and 1994, respectively. Investment income reflects interest earnings
on short-term investments and realized gains and losses on investments, reduced
by interest expense on outstanding debt of $2,486,000, $3,815,000 and
$1,740,000 in 1996, 1995 and 1994, respectively. Investment income in 1995
included an approximate $2,000,000 gain on the sale of an investment. Interest
expense is net of capitalized interest of approximately $7,300,000, $5,700,000
and $5,500,000 in 1996, 1995 and 1994, respectively. On August 14, 1996, the
company completed the redemption of the remaining $55,880,000 outstanding
principal amount of its 6.75% Convertible Subordinated Debentures due 2003,
thereby reducing interest payments going forward.
Equity in Losses of Affiliates and Non-Controlling Interests in Losses of
Consolidated Subsidiaries
Equity in losses of affiliates includes Orbital's proportionate share of
ORBCOMM Global's net income or loss for the year and Orbital's elimination of
proportionate profits or losses on sales to ORBCOMM Global. In 1996, Orbital's
share of ORBCOMM Global's net loss was $8,268,000, and Orbital eliminated
$714,000 of losses on sales to ORBCOMM Global. In 1995, Orbital's share of
ORBCOMM Global's net income was $454,000, and Orbital eliminated $1,213,000 of
profits on sales to ORBCOMM Global. In 1994, ORBCOMM Global had no net income
or loss, and Orbital eliminated $1,264,000 of profits on sales to ORBCOMM
Global. Non-controlling interests in losses of consolidated subsidiaries
represents that portion of the subsidiary's losses allocable to other
shareholders. Orbital expects its proportionate share of ORBCOMM Global's
losses in 1997 to significantly exceed those incurred in 1996.
Provision (Benefit) for Income Taxes
The company recorded consolidated income tax provisions of $1,831,000 and
$2,744,000 for 1996 and 1994, respectively. The company's effective tax rate
for these periods (10.3% and 26.5% in 1996 and 1994, respectively) is primarily
a result of non-tax deductible goodwill amortization related to purchase
acquisitions, offset by tax-exempt interest earnings, U.S. Federal net
operating loss carryforwards and Canadian investment tax credits. The company
recorded an income tax benefit of approximately $1,302,000 in 1995, primarily
as a result of the carryback and recapture of previously paid U.S. Federal
taxes and management's determination that certain Canadian investment tax
credit carryforwards would be realized in the near future.
At December 31, 1996, Orbital had approximately $120,000,000 of U.S. Federal
net operating loss carryforwards and $3,000,000 of U.S. Federal research and
experimental tax credit carryforwards which, subject to certain annual
limitations, are available to
34 ----------- ORBITAL
<PAGE> 7
reduce future U.S. Federal income tax obligations. At December 31, 1996 and
1995, Orbital provided a reserve of $57,000,000 and $65,000,000, respectively,
against certain of its consolidated deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The company's growth has required substantial capital to fund both an expanding
business base and significant research and development and capital
expenditures. The company has funded these requirements to date, and expects to
fund its requirements in the future, through cash generated by operations,
working capital, loan facilities, asset-based financings, joint venture
arrangements, and private and public equity and debt offerings. Additionally,
the company has historically made strategic acquisitions of businesses and
routinely evaluates potential acquisition candidates. The company expects to
continue to pursue potential acquisitions that it believes would enhance its
business. The company has historically financed its acquisitions, and expects
to finance its future acquisitions, through cash on hand, cash generated by
operations, the issuance of debt and/or equity securities, and/or asset-based
financings.
Cash, cash equivalents and short-term investments were $32,686,000 at December
31, 1996, and the company had short-term and long-term debt obligations
outstanding of approximately $71,595,000. The outstanding debt relates
primarily to advances under the company's line of credit facilities, secured
and unsecured notes, and fixed asset financings. Cash and cash equivalents
included approximately $11,604,000 of cash reserved against outstanding letters
of credit. Orbital's current ratio was 1.7 at December 31, 1996, compared to
1.8 and 1.4 at December 31, 1995 and 1994, respectively.
In December 1996 and June 1995, the company issued and sold 1,200,000 and
2,000,000 shares, respectively, of its Common Stock in private placements to
various offshore institutional investors, receiving net proceeds of
approximately $20,000,000 and $32,400,000, respectively.
On August 14, 1996, the company completed the redemption of the remaining
$55,880,000 outstanding principal amount of its 6.75% Convertible Subordinated
Debentures due 2003. The outstanding principal amount was converted into
3,887,304 shares of Common Stock.
Orbital amended its $20,000,000 unsecured note agreement during the third
quarter of 1996 to facilitate compliance with certain financial covenants as
well as to permit the completion of the ORBCOMM Global debt financing. In
connection with this amendment, the interest rate on the note was increased
from 10.5% to 11.5%, effective July 1, 1996. The unsecured note contains
certain covenants with respect to fixed charge ratio, leverage ratio and
tangible net worth, and includes certain cross-default provisions. The company
is currently considering restructuring or refinancing this debt.
The company's primary revolving credit facility provides for total borrowings
from an international syndicate of six banks of up to $65,000,000, subject to a
defined borrowing base comprised of certain receivables. Approximately
$8,000,000 of borrowings were outstanding under the facility at December 31,
1996, and the available facility limit was approximately $36,000,000. At
December 31, 1996, the average interest rate on outstanding borrowings under
this facility was approximately 7.5%. Borrowings are secured by receivables and
certain other assets. The facility prohibits the payment of cash dividends and
contains certain covenants with respect to the company's working capital, fixed
charge ratio, leverage ratio and tangible net worth, and expires in September
1997. Orbital plans to extend this facility in 1997.
The company also maintains two additional revolving credit facilities, under
which approximately $23,200,000 was outstanding at December 31, 1996. The
borrowing capacity of the two additional agreements was approximately
$35,000,000, consisting of a $10,000,000 line of credit collateralized by
substantially all the assets of Magellan and an unsecured $25,000,000 demand
line of credit.
On August 7, 1996, ORBCOMM Global issued and sold $170,000,000 of senior
unsecured notes due 2004 (the "Notes") to institutional investors. The Notes
bear interest at a fixed rate of 14%, and provide for noteholder participation
in future ORBCOMM Global service revenues. Net proceeds from the sale of the
Notes are being applied to (i) the design, construction, launch, operation and
marketing of ORBCOMM Global services, (ii) operating and management expenses
35 ----------- ORBITAL
<PAGE> 8
MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(including cost contingencies) and (iii) the first two years of interest on the
Notes. The Notes are fully and unconditionally guaranteed on a joint and
several basis by the company's majority owned subsidiary, Orbital
Communications Corporation, and by Teleglobe Mobile Partners; the guarantee is
non-recourse to Orbital.
The company's operations provided net cash of approximately $15,365,000 during
1996. The company also invested approximately $18,816,000 in ORBCOMM Global,
incurred $10,355,000 in capital expenditures related to ORBIMAGE satellite
imaging systems and incurred approximately $31,345,000 in capital expenditures
for various launch vehicle, satellite and other production and test equipment
to support future growth.
Orbital expects that the capital required for the design, development,
construction, marketing and initial operations of its ORBIMAGE commercial
satellite imaging business will be approximately $225,000,000. The company has
invested approximately $60,000,000 to date on imaging satellites and related
ground systems that are currently operating, in the final testing phase, or
under design and development. Orbital expects to invest up to $30,000,000 in
ORBIMAGE satellite imaging projects in 1997. In addition, Orbital is exploring
alternatives for raising capital to fund the remaining costs of such projects,
including customer financing and the issuance of securities at the ORBIMAGE
subsidiary level.
Capital expenditures for 1997 are expected to be approximately $15,000,000,
including investments in production and test equipment for various satellites,
launch vehicles and other products. Orbital expects that its capital needs for
1997 will be met by the proceeds from the 1996 private placement, cash flows
from operations, debt financing, customer financing and operating lease
arrangements.
36 ----------- ORBITAL
<PAGE> 9
INDEPENDENT
AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Sciences Corporation:
We have audited the accompanying consolidated balance sheets of Orbital
Sciences Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Orbital Sciences
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Washington, D.C.
February 5, 1997
37 ----------- ORBITAL
<PAGE> 10
CONSOLIDATED STATEMENTS
OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 461,435 $ 364,320 $ 301,576
Costs of goods sold 336,261 268,016 216,417
---------------------------------------------
Gross profit 125,174 96,304 85,159
Research and development expenses 22,179 28,512 17,259
Selling, general and administrative expenses 76,019 63,427 53,165
Amortization of excess of purchase price over net assets acquired 3,134 3,221 2,360
---------------------------------------------
Income from operations 23,842 1,144 12,375
Net investment income (expense), net of interest expense of
$2,486, $3,815, and $1,740, respectively (1,123) 639 (244)
Equity in losses of affiliates (6,454) (759) (1,264)
Non-controlling interests in losses of
consolidated subsidiaries 1,473 427) --
Acquisition expenses -- (3,441) (503)
---------------------------------------------
Income (loss) before provision (benefit) for income taxes
and cumulative effect of accounting change 17,738 (1,990) 10,364)
Provision (benefit) for income taxes 1,831 (1,302) 2,744
---------------------------------------------
Income (loss) before cumulative effect of accounting change 15,907 (688) 7,620
Cumulative effect of accounting change, net of taxes -- (4,160) --
---------------------------------------------
Net income (loss) $ 15,907 $ (4,848) $ 7,620
=============================================
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) before cumulative effect of accounting change $ 0.55 $ (0.03) $ 0.33
Cumulative effect of accounting change -- (0.16) --
---------------------------------------------
$ 0.55 $ (0.19) $ 0.33
=============================================
Shares used in computing net income (loss)
per common and common equivalent share 29,137,361 26,207,746) 23,191,553
=============================================
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION:
Income (loss) before cumulative effect of accounting change $ 0.55 $ (0.03) $ 0.32
Cumulative effect of accounting change -- (0.16) --
---------------------------------------------
$ 0.55 $ (0.19) $ 0.32
=============================================
Shares used in computing net income (loss)
per common share, assuming full dilution 31,616,119 30,103,858 27,309,336
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
38 ----------- ORBITAL
<PAGE> 11
CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of
$11,604 and $10,700, respectively $ 26,859 $ 15,317
Short-term investments, at market 5,827 19,713
Receivables, net 144,774 118,358
Inventories, net 27,159 38,527
Deferred income taxes and other assets 6,475 7,330
--------------------------
TOTAL CURRENT ASSETS 211,094 199,245
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization of
$68,161 and $53,067, respectively 102,673 91,512
SATELLITE SYSTEMS, at cost, less accumulated depreciation of $1,373 and $547, respectively 25,189 14,363
INVESTMENTS IN AFFILIATES, net 86,524 74,063
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, less accumulated amortization of
$15,942 and $13,695, respectively 69,512 75,395
DEFERRED INCOME TAXES AND OTHER ASSETS 9,720 12,330
--------------------------
TOTAL ASSETS $ 504,712 $ 466,908
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 38,519 $ 11,907
Accounts payable 25,789 25,808
Accrued expenses 32,372 41,474
Deferred revenue 30,741 32,503
--------------------------
TOTAL CURRENT LIABILITIES 127,421 111,692
LONG-TERM OBLIGATIONS, net of current portion 33,076 96,990
OTHER LIABILITIES 15,523 19,740
--------------------------
TOTAL LIABILITIES 176,020 228,422
NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES (1,810) (422)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized:
Series A Special Voting Preferred Stock, one share authorized and outstanding -- --
Class B Preferred Stock, 10,000 shares authorized and outstanding -- --
Common Stock, par value $.01; 40,000,000 shares authorized, 32,160,598 and 26,766,029
shares outstanding, after deducting 15,735 shares held in treasury 322 268
Additional paid-in capital 323,592 247,580
Unrealized gains on short-term investments 14 68
Cumulative translation adjustment (3,681) (3,356)
Retained earnings (deficit) 10,255 (5,652)
--------------------------
TOTAL STOCKHOLDERS' EQUITY 330,502 238,908
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 504,712 $ 466,908
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
39 ----------- ORBITAL
<PAGE> 12
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK GAINS (LOSSES)ON CUMULATIVE
------------------------- ADDITIONAL SHORT-TERM TRANSLATION
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT PAID-IN CAPITAL INVESTMENTS ADJUSTMENT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 21,725,693 $ 217 $ 177,379 $ 12 $ (2,335)
Shares issued to employees and directors 107,387 2 1,619 -- --
Shares issued in purchase business combination 2,424,242 24 30,976 -- --
Adjustment to recast year end of pooled company -- -- -- -- --
Transactions of pooled companies -- -- 56 -- --
Translation adjustment -- -- -- -- (776)
Net income -- -- -- -- --
Unrealized losses on short-term investments -- -- -- (474) --
-------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 24,257,322 243 210,030 (462) (3,111)
Shares issued to employees and directors 300,011 3 1,857 -- --
Shares issued in private offering 2,000,000 20 32,366 -- --
Conversion of convertible debentures 208,696 2 2,914 -- --
Adjustment to recast year end of pooled company -- -- -- -- --
Transactions of pooled company -- -- 413 -- --
Translation adjustment -- -- -- -- (245)
Net loss -- -- -- -- --
Unrealized gains on short-term investments -- -- -- 530 --
-------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 26,766,029 268 247,580 68 (3,356)
Shares issued to employees and directors 298,916 3 2,163 -- --
Shares issued in private offering 1,200,000 12 20,251 -- --
Conversion of convertible debentures 3,895,653 39 53,598 -- --
Translation adjustment -- -- -- -- (325)
Net income -- -- -- -- --
Unrealized losses on short-term investments -- -- -- (54) --
-------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 32,160,598 $ 322 $ 323,592 $ 14 $ (3,681)
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
RETAINED
EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA) (DEFICIT) TOTAL
- --------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1993 $ (5,884) $ 169,389
Shares issued to employees and directors -- 1,621
Shares issued in purchase business combination -- 31,000
Adjustment to recast year end of pooled company (1,138) (1,138)
Transactions of pooled companies (355) (299)
Translation adjustment -- (776)
Net income 7,620 7,620
Unrealized losses on short-term investments -- (474)
-------------------------------
BALANCE, DECEMBER 31, 1994 243 206,943
Shares issued to employees and directors -- 1,860
Shares issued in private offering -- 32,386
Conversion of convertible debentures -- 2,916
Adjustment to recast year end of pooled company (1,047) (1,047)
Transactions of pooled company -- 413
Translation adjustment -- (245)
Net loss (4,848) (4,848)
Unrealized gains on short-term investments -- 530
-------------------------------
BALANCE, DECEMBER 31, 1995 (5,652) 238,908
Shares issued to employees and directors -- 2,166
Shares issued in private offering -- 20,263
Conversion of convertible debentures -- 53,637
Translation adjustment -- (325)
Net income 15,907) 15,907
Unrealized losses on short-term investments -- (54)
-------------------------------
BALANCE, DECEMBER 31, 1996 $ 10,255) $ 330,502
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
40 ----------- ORBITAL
<PAGE> 13
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 15,907 $ (4,848) $ 7,620
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expense 25,096 22,229 17,198
Equity in losses of affiliates 6,454 759 1,264
Non-controlling interests in losses of consolidated subsidiaries (1,473) (427) --
Loss (gain) on sale of fixed assets and investments 226 (2,196) 4
Cumulative effect of accounting change -- 4,160 --
Foreign currency translation adjustment (325) (245) (776)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables (29,916) (2,337) 12,536
(Increase) decrease in inventories 10,261 (12,082) (3,638)
(Increase) decrease in other current assets 9 (2,112) 5,215
(Increase) decrease in other non-current assets 2,212 (1,828) 169
Decrease in accounts payable and accrued expenses (11,051) (11,423) (10,929)
Increase (decrease) in deferred revenue 919 7,090 (22,609)
Increase (decrease) in other liabilities (2,954) 942 2,761
---------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 15,365 (2,318) 8,815
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (31,345) (9,117) (23,151)
Investments in satellite systems (12,199) (8,122) (6,788)
Proceeds from sales of assets, net 9,518 293 --
Purchases of available-for-sale investment securities (5,623) (61,685) (35,731)
Sales of available-for-sale investment securities 11,041 49,168 42,255
Maturities of available-for-sale investment securities 8,220 8,100 7,789
Investments in affiliates (20,728) (18,888) (15,208)
Purchases of subsidiary stock (1,263) -- --
Payment for business acquisition -- -- (45,063)
---------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (42,379) (40,251) (75,897)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) 26,200 (17,483) 9,405
Principal payments on long-term obligations (7,502) (5,749) (1,883)
Proceeds from issuance of long-term obligations -- 20,000 28,730
Fees associated with conversion of debentures (2,571) -- --
Net proceeds from issuances of common stock 22,429 34,246 1,753
Adjustment to recast pooled company's year end -- (1,047) (1,138)
---------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 38,556 29,967 36,867
---------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,542 (12,602) (30,215)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,317 27,919 58,134
---------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,859 $ 15,317 $ 27,919
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
41 ----------- ORBITAL
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1/ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or the
"company"), a Delaware corporation, is an international space and information
systems company that designs, manufactures, operates and markets a broad range
of affordable space and ground infrastructure systems, satellite access
products and satellite-delivered services. Space and ground infrastructure
systems include launch vehicles, satellites, electronics and sensors, and
satellite ground systems and software; satellite access products include
satellite navigation and communications products; and satellite-delivered
services include global messaging and remote imaging services. Disaggregated
financial information is presented in Note 2.
Preparation of Consolidated Financial Statements
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 financial statement presentation. All
financial amounts are stated in U.S. dollars unless otherwise indicated.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Orbital, all
wholly and partially owned subsidiaries controlled by Orbital, and partnerships
in which Orbital directly or indirectly controls the general partner interests.
All material transactions and accounts among consolidated entities have been
eliminated in consolidation.
Revenue Recognition
Orbital recognizes revenues on long-term infrastructure contracts using the
percentage of completion method of accounting. Accordingly, (i) revenues on
cost-plus-fee contracts are recognized to the extent of costs incurred plus a
proportionate amount of fee earned, and (ii) revenues on long-term fixed-price
contracts are recognized based on costs incurred in relation to total estimated
costs, or based on specific delivery terms and conditions. To the extent that
estimated costs of completion are adjusted, revenue and profit recognized from
a particular contract will be affected in the period of the adjustment.
Anticipated contract losses are recognized as they become known.
Revenues from sales of access products and satellite services are generally
recognized when the product is shipped or the service is performed.
Foreign Currency
Orbital's foreign operating entities are in a number of countries and deal in a
number of foreign currencies. The financial results of foreign operations are
translated to U.S. dollars using the current exchange rates for assets and
liabilities and using weighted average exchange rates for revenues, expenses,
gains and losses.
Translation gains and losses relating to foreign operations that are
self-contained and integrated within a particular country or economic
environment, and therefore are not dependent on the U.S. dollar, are recognized
as a separate component of stockholders' equity until there is a realized
reduction in Orbital's net investment in the foreign operation. Translation
losses in 1996, 1995 and 1994 were approximately $325,000, $245,000 and
$776,000, respectively. Translation gains and losses relating to foreign
operations that are a direct and integral component or extension of Orbital's
domestic operations, and therefore are dependent on the U.S. dollar, are
reported currently as a component of net income.
Orbital enters into forward exchange contracts to hedge against foreign
currency fluctuations on certain receivables and payables. Gains and losses on
contracts to hedge specific foreign currency commitments are deferred and
accounted for as part of the underlying transaction.
Research and Development
Research and development expenses include self-funded product development
activities, exclude direct customer-funded development and are expensed as
42 ----------- ORBITAL
<PAGE> 15
incurred. Research and development expenses are allocated, when appropriate, to
U.S. Government contracts under government-mandated cost accounting standards.
In 1995, Orbital expensed $3,000,000 of costs related to the termination of a
reusable launch vehicle development program. Such costs are included as
research and development expenses.
Depreciation, Amortization and Recoverability of Long-Lived Assets
Depreciation and amortization are provided using the straight-line method as
follows:
Buildings 18 to 20 years
Machinery, Equipment
and Software 3 to 10 years
Satellite Systems Estimated useful
life of satellite
Leasehold Improvements Shorter of estimated useful
life or lease term
In 1995, the company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121"), which (i) requires that long-lived assets "to
be held and used" be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, (ii) requires that long-lived assets "to be disposed of" be
reported at the lower of carrying amount or fair value less cost to sell and
(iii) provides guidelines and procedures for measuring an impairment loss that
are significantly different from previous guidelines and procedures. The
cumulative effect of adopting SFAS 121 on prior years' earnings, related to the
impairment in the carrying amount of certain assets to be disposed of that
supported Orbital's orbit transfer vehicle product line, was approximately
$4,160,000, and is reported in the 1995 consolidated statement of earnings. The
effect of adopting SFAS 121 on income from continuing operations for 1996 and
1995 was not material.
Orbital's policy is to review its long-lived assets, including investments in
affiliates, specialized equipment used to support specific space-related
products and satellite systems, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The company recognizes an impairment loss when the sum of
expected future cash flows is less than the carrying amount of the asset.
Given the inherent technical and commercial risks within the space industry, it
is reasonably possible that the company's current estimate that it will recover
the carrying amount of its long-lived assets from future operations may change.
Income Taxes
The company recognizes income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized as income in the period that includes the enactment date.
Stock-Based Compensation
Prior to January 1, 1996, the company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations. Pursuant to APB 25, compensation expense is recorded only to
the extent that the current market price of the underlying stock exceeded the
exercise price on the date of grant. On January 1, 1996, the company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which requires companies to (i)
recognize as expense the fair value of all stock-based awards on the date of
grant, or (ii) continue to apply the provisions of APB 25 and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS 123 had been applied. The company has elected to continue to
apply the provisions of APB 25 and provide the pro forma disclosure provisions
of SFAS 123 (See Note 14).
43 ----------- ORBITAL
<PAGE> 16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Income (Loss) Per Share
Income (loss) per common and common equivalent share is calculated using the
weighted average number of common shares (including the Exchangeable Shares
(See Note 4)) and common equivalent shares, to the extent dilutive, outstanding
during the periods. Income (loss) per common share assuming full dilution is
calculated using the weighted average number of common shares (including the
Exchangeable Shares) and common equivalent shares outstanding during the
periods, plus the effects of an assumed conversion of the company's Convertible
Debentures, after giving effect to all net income adjustments that would result
from the assumed conversion. The Convertible Debentures were converted to
Orbital common shares on August 14, 1996 (See Note 10). Any reduction of less
than 3% in the aggregate has not been considered dilutive in the calculation
and presentation of income (loss) per common share assuming full dilution.
Common equivalent shares are comprised solely of stock options (See Note 13).
Since the Exchangeable Shares have voting and economic rights identical to
Orbital common shares, the Exchangeable Shares have been included as common
shares in the accompanying consolidated balance sheets.
Cash and Cash Equivalents and Short-Term Investments
Orbital considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Investments in securities that do
not meet the definition of cash equivalents are classified as short-term
investments. Since Orbital does not intend to hold its investments in debt and
equity securities until maturity and does not actively trade the securities to
maximize trading gains, Orbital classifies these securities as
"available-for-sale" and, accordingly, reports such securities at fair value
plus accrued interest. Any temporary excess (deficiency) of market value over
(under) the underlying cost of the short-term investment is excluded from
current period earnings and is reported as unrealized gains (losses) as a
separate component of stockholders' equity.
At December 31, 1996 and 1995, the company had approximately $11,604,000 and
$10,700,000, respectively, of cash restricted in support of outstanding letters
of credit.
Inventories
Inventories consist of components and raw materials inventory, work-in-process
inventory and finished goods inventory and are generally stated at the lower of
cost or net realizable value on a first-in, first-out ("FIFO") or specific
identification basis. Inventories, net of allowances for obsolescence,
consisted of the following:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Components and raw materials $ 19,090 $ 17,756
Work-in-process 6,962 19,430
Finished goods 1,107 1,341
-------------------------
Total $ 27,159 $ 38,527
=====================================================================
</TABLE>
Components and raw materials are purchased to support future production
efforts. Work-in-process inventory consists primarily of (i) costs incurred
under long-term fixed-price contracts accounted for using the
percentage-of-completion method of accounting applied on a units of delivery
basis, and (ii) partially assembled commercial products, and generally includes
direct production costs and certain allocated indirect costs (including an
allocation of general and administrative costs). Work-in-process inventory has
been reduced by contractual progress payments received of $26,696,000 and
$2,631,000 at December 31, 1996 and 1995, respectively. Finished goods
inventory consists of fully assembled commercial products awaiting shipment.
Self-Constructed Assets and Internally Developed Software
The company self-constructs much of its ground and airborne support and special
test equipment used in the manufacture, production and delivery of many of its
infrastructure products. Orbital also develops and manufactures product
improvements and enhancements to existing products for sale, and builds and
operates satellite systems used in providing commercial services. Orbital
capitalizes certain costs incurred in constructing ground and airborne support
and special test equipment, product improvements and enhancements, and
satellite systems. Capitalized costs generally include direct construction
costs and certain allocated indirect costs, and exclude general and
administrative and research and development costs.
44 ----------- ORBITAL
<PAGE> 17
The company also capitalizes certain internal costs incurred in developing
software to be used to support various programs and/or products. Capitalized
costs generally include direct software coding costs and certain allocated
indirect costs, and exclude general and administrative and research and
development costs. Amortization of capitalized costs begins when the software
systems are placed in service. No amortization expense is included in the
accompanying consolidated statements of earnings as such software systems have
not yet been placed in service.
Investments in Affiliates
The company uses the equity method of accounting for its investments in and
earnings of affiliates in which the company has the ability to significantly
influence, but not control, such affiliate's operations. In accordance with
the equity method of accounting, the company's carrying amount of an investment
in an affiliate is initially recorded at cost and is increased to reflect its
share of the affiliate's income and is reduced to reflect its share of the
affiliate's losses. Orbital's investment is also increased to reflect
contributions to, and decreased to reflect distributions received from, the
affiliate. Any excess of the amount of Orbital's investment over the amount of
the underlying equity in each affiliate's net assets is amortized over a period
of 20 years. The company capitalizes interest costs on equity method
investments when such affiliate has significant assets under construction. At
December 31, 1996 and 1995, approximately $15,947,000 and $10,100,000,
respectively, of interest costs had been capitalized as part of the historical
cost of investments in affiliates. The company uses the cost method of
accounting for investments in affiliates in which it cannot control or
significantly influence operations.
The company provides a valuation allowance against an investment in an
affiliate when it is determined that recovery of all or part of the investment
is not probable. At December 31, 1996 and 1995, approximately $1,100,000 of
allowance had been provided to fully reserve certain investments in affiliates.
Approximately $2,000,000 of gain on the sale of an investment was realized in
1995 when Orbital sold one such fully reserved investment. The gain was
reported in net investment income in the 1995 consolidated statement of
earnings. No such gains from sales of investments were realized in 1996 or
1994.
Excess of Purchase Price Over Net Assets Acquired
The company amortizes the excess of purchase price over net assets acquired
related to prior business combinations on a straight-line basis over their
estimated useful life, generally 20-40 years. Orbital periodically assesses and
evaluates the recoverability of such assets based on current facts and
circumstances and the operational viability of its acquired businesses. The
company recognizes an impairment loss when the sum of expected future cash
flows is less than the carrying amount of the asset.
Warranties
The company occasionally accepts warranty clauses in its commercial and
government long-term contracts. In the event the company does not purchase
insurance coverage to protect itself in connection with such warranty clauses,
the company records a liability for warranty claims when it determines that a
specific material liability exists. Orbital has not recorded any liability for
potential warranty claims on its existing contracts because these expenses, if
any, are not expected to have a material adverse effect on the company's
financial condition or results of operations.
The company at times provides limited warranties on certain commercial products
and accrues an estimate of expected warranty costs based on historical
experience.
2/ DISAGGREGATED FINANCIAL INFORMATION
Industry Segment Information
Orbital's operations have been classified into three industry segments, "Space
and Ground Infrastructure Systems," "Satellite Access Products" and
"Satellite-Delivered Services." Space and Ground Infrastructure Systems
include: launch vehicles, including space and suborbital launch vehicles and
reusable launch vehicles; satellites and other space systems; electronics and
sensors, including space sensors and instruments, as well as avionics and other
electronics equipment; and ground systems and software, including satellite
ground systems and various software products. Satellite Access Products
include satellite navigation and communications products. Satellite-Delivered
Services include satellite-based global data communications services and
satellite-based remote imaging services.
45 ----------- ORBITAL
<PAGE> 18
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following table presents revenues, operating income (loss), identifiable
assets, capital expenditures, depreciation and amortization and impairment
losses by industry segment for 1996, 1995 and 1994. Operating income (loss) is
total revenues less costs of goods sold, research and development expenses,
selling, general and administrative expenses and amortization of goodwill.
Identifiable assets are those assets used in the operations of each industry
segment. There were no significant intersegment sales or transfers during
1996, 1995 and 1994.
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SPACE AND GROUND
INFRASTRUCTURE SYSTEMS:
Revenues $ 388,814 $ 300,439 $ 252,905
Operating income 26,376 2,433 12,554
Identifiable assets 362,700 357,662 353,430
Capital expenditures 27,529 15,065 27,322
Depreciation and amortization 21,954 21,150 16,150
Impairment losses -- 4,160 --
SATELLITE ACCESS PRODUCTS:
Revenues $ 71,188 $ 52,681 $ 38,517
Operating income 4,902 3,441 3,801
Identifiable assets 32,376 27,641 22,387
Capital expenditures 3,402 1,204 708
Depreciation and amortization 944 532 581
SATELLITE-DELIVERED SERVICES:
Revenues $ 1,433 $ 11,200 $ 10,154
Operating loss (7,436) (4,730) (3,980)
Identifiable assets 109,636 81,605 65,225
Capital expenditures 12,613 970 1,909
Depreciation and amortization 2,198 547 467
CONSOLIDATED:
Revenues $ 461,435 $ 364,320 $ 301,576
Operating income 23,842 1,144 12,375
Identifiable assets 504,712 466,908 441,042
Capital expenditures 43,544 17,239 29,939
Depreciation and amortization 25,096 22,229 17,198
Impairment losses -- 4,160 --
- --------------------------------------------------------------------------------------------------------
</TABLE>
Domestic and Non-U.S. Operations
The following table presents Orbital's revenues, operating income (loss) and
identifiable assets by major operating location:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
United States $ 392,130 $ 290,914 $ 221,946
Canada and Mexico 65,350 68,997 74,408
United Kingdom and other 3,955 4,409 5,222
OPERATING INCOME (LOSS):
United States $ 21,183 $ (2,413) $ 9,662
Canada and Mexico 2,416 3,964 2,796
United Kingdom and other 243 (407) (83)
IDENTIFIABLE ASSETS:
United States $ 454,336 $ 420,078 $ 396,228
Canada and Mexico 46,984 44,291 42,302
United Kingdom and other 3,392 2,539 2,512
- --------------------------------------------------------------------------------------------------------
</TABLE>
Major Customers and Export Sales
Orbital's sales by geographic area are as follow:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 349,555 $ 275,707 $ 213,606
Canada 46,742 45,558 46,839
Europe 33,762 23,594 24,468
Far East 17,517 15,242 13,998
Middle East and other 13,859 4,219 2,665
---------------------------------------
Total $ 461,435 $ 364,320 $ 301,576
========================================================================================================
</TABLE>
Approximately 45%, 40% and 45% of the company's revenues in 1996, 1995 and
1994, respectively, were generated under contracts with the U.S. Government and
its agencies or under subcontracts with the U.S. Government's prime
contractors.
3/ INVESTMENTS IN AFFILIATES
ORBCOMM Partnerships
In 1993, the company's majority owned subsidiary, Orbital Communications
Corporation ("OCC"), and Teleglobe Mobile Partners ("Teleglobe Mobile"), an
affiliate of Teleglobe Inc., formed a partnership, ORBCOMM Global, L.P.
("ORBCOMM Global"), for the design, development, construction, integration,
testing and operation of a low-Earth orbit satellite communications system
(the "ORBCOMM System"). OCC and
46 ----------- ORBITAL
<PAGE> 19
Teleglobe Mobile are each 50% general partners in ORBCOMM Global. OCC and
Teleglobe Mobile have contributed approximately $75,275,000 and $84,525,000,
respectively, through December 31, 1996.
Additionally, OCC is a 2% general partner in ORBCOMM USA, L.P. ("ORBCOMM USA")
and Teleglobe Mobile is a 2% general partner in ORBCOMM International Partners,
L.P. ("ORBCOMM International"), two partnerships formed to market the ORBCOMM
System. ORBCOMM Global is a 98% general partner in each of the two marketing
partnerships.
Pursuant to the terms of the partnership agreements, (i) OCC and Teleglobe
Mobile share equal responsibility for the operational and financial affairs of
ORBCOMM Global; (ii) OCC controls the operational and financial affairs of
ORBCOMM USA; and (iii) Teleglobe Mobile controls the operational and financial
affairs of ORBCOMM International. Since OCC is unable to control, but is able
to exercise significant influence over, ORBCOMM Global's and ORBCOMM
International's operating and financial policies, the company is accounting for
its investments in ORBCOMM Global and ORBCOMM International using the equity
method of accounting. Since OCC is able to control the operational and
financial affairs of ORBCOMM USA, the company consolidates the accounts of
ORBCOMM USA.
Orbital is the primary supplier of the communications satellites, launch
vehicles and certain ground systems to ORBCOMM Global, and successfully
launched the first two ORBCOMM System satellites in April 1995. During 1996,
1995 and 1994, Orbital recorded contract revenues on sales to ORBCOMM Global of
approximately $47,215,000, $49,187,000 and $30,048,000, respectively, and
eliminated as equity in earnings (losses) of affiliates 50% of its profits on
those sales since ORBCOMM Global is capitalizing substantially all its
purchases from Orbital. At December 31, 1996 and 1995, Orbital had
approximately $3,400,000 and $8,900,000, respectively, in receivables from
ORBCOMM Global. Additionally, since 1995 Orbital has provided certain
administrative services to ORBCOMM Global, ORBCOMM USA and ORBCOMM
International, such as facility space, utilities, administrative supplies and
certain other administrative services. During 1996 and 1995, Orbital received
payments of approximately $1,295,000 and $297,000, respectively, for such
services.
At December 31, 1996, ORBCOMM Global had total assets, total liabilities and
total partners' capital of $329,509,000, $191,568,000 and $137,941,000,
respectively. ORBCOMM Global recorded approximately $421,000 in revenues and
$19,480,000 in losses for the year ended December 31, 1996.
Based on its current assessment of the overall business prospects of the
ORBCOMM partnerships and the ORBCOMM System, the company currently believes its
investment in ORBCOMM Global is fully recoverable. If in the future, the
ORBCOMM business is not successful, the company may be required to expense part
or all of its investment.
Radarsat International Inc.
The company owns an approximate 25% equity interest in Radarsat International
Inc. ("RSI"), a Canadian-based company specializing in satellite-based remote
imaging. RSI successfully launched its first remote imaging satellite in
November 1995 and began generating revenues in 1996. Orbital is accounting for
its investment in RSI using the equity method of accounting.
EarthWatch, Incorporated
The company owns an approximate one percent equity interest in EarthWatch,
Incorporated, a U.S.-based company developing high-resolution commercial
satellite imaging services. Orbital accounts for this investment using the
cost method of accounting.
4/ BUSINESS COMBINATIONS
Purchase Transactions
On August 11, 1994, the company acquired all the outstanding common stock of
Fairchild Space and Defense Corporation ("Fairchild") from Matra Aerospace,
Inc. (the "Fairchild Acquisition"). As a result of the Fairchild Acquisition,
the company expanded its satellites, electronics and related product lines and
technology and production capabilities.
The Fairchild Acquisition has been accounted for using the purchase method of
accounting and, accordingly,
47 ----------- ORBITAL
<PAGE> 20
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
the purchase price of approximately $71,000,000 (consisting of 2,424,242 shares
of the company's Common Stock, $40,000,000 in cash and approximately $800,000
in transaction expenses) was allocated to assets and liabilities acquired based
on estimates of fair values as of the date of acquisition. The excess of
purchase price over net assets acquired is being amortized on a straight-line
basis over 40 years. Fairchild's results of operations for the 19-week period
ended December 31, 1994 are included in Orbital's 1994 consolidated results of
operations.
On April 6, 1994, the company acquired all the outstanding common shares of The
PSC Communications Group Inc. ("PSC") from PSC's former shareholders. In
October 1996, Orbital sold substantially all the assets of PSC for
approximately $13,000,000, resulting in a gain of approximately $3,600,000.
The gain is included in revenues in the 1996 consolidated statement of
earnings.
Pooling of Interests Transactions
On December 28, 1994, the company acquired all the outstanding common stock of
Magellan Corporation ("Magellan") from Magellan's former shareholders in a
tax-free merger (the "Magellan Acquisition"). As a result of the Magellan
Acquisition, Orbital develops, manufactures, markets and sells global
satellite-based navigation and communications access products for consumer and
industrial markets worldwide.
The Magellan Acquisition was consummated by exchanging 2,640,441 shares of the
company's Common Stock for all of Magellan's outstanding common stock. The
company also granted 409,556 options to acquire Orbital Common Stock to
Magellan employees who, at the date of the acquisition, held options to acquire
Magellan common stock. The Magellan Acquisition is accounted for using the
pooling of interests method of accounting and, accordingly, Orbital's
historical consolidated financial statements have been restated to include
Magellan's financial position, results of operations and cash flows. Merger
expenses relating to the Magellan Acquisition of approximately $500,000 were
charged to earnings during the three months ended December 31, 1994 and are
included in acquisition expenses in the accompanying 1994 consolidated
statement of earnings.
Prior to the acquisition, Magellan's financial results were prepared on a June
30 fiscal year basis. Orbital's consolidated financial statements for the year
ended December 31, 1994 include Magellan's financial results for the
twelve-month period ended December 31, 1994. The effect of recasting
Magellan's year end for 1994 has been charged to Orbital's retained earnings as
of January 1, 1994. The charge to retained earnings eliminated the effect of
including Magellan's results of operations for the six-month period ended June
30, 1994 of $1,138,000 in Orbital's 1994 consolidated results of operations.
Magellan's revenues for the same six-month period were approximately
$18,500,000.
On November 17, 1995, the company acquired all the outstanding common shares of
MacDonald, Dettwiler and Associates, Ltd. ("MDA") from MDA's former
shareholders in a merger designed to be tax free to MDA's Canadian shareholders
(the "MDA Acquisition"). As a result of the MDA Acquisition, Orbital is a
leading supplier of commercial satellite imaging ground systems capable of
handling all major optical and radar imaging satellites. Orbital also provides
advanced space-qualified software, air traffic control systems and defense
electronics products through MDA.
Pursuant to the terms of the MDA Acquisition, a newly established, wholly owned
Canadian subsidiary of Orbital ("Acquisition Subsidiary") issued exchangeable
shares (the "Exchangeable Shares") in exchange for all the issued and
outstanding MDA common shares. The Exchangeable Shares have voting and
economic rights with respect to Orbital identical to Orbital Common Stock and
are exchangeable into Orbital Common Stock at the option of the holders. As
part of the MDA Acquisition, Acquisition Subsidiary also issued 10,000 shares
of Class B Preferred Stock to a financial advisor in satisfaction of a portion
of the fees owed to that advisor. Additionally, Orbital issued one share of
Series A Special Voting Preferred Stock to a voting trust to act as a voting
trustee on behalf of the holders of the Exchangeable Shares. The Orbital
Series A Special Voting Preferred Stock has voting rights, privileges and
preferences required to secure the voting rights relating to the Orbital Common
Stock granted for the benefit of the holders of the Exchangeable Shares.
48 ----------- ORBITAL
<PAGE> 21
The MDA Acquisition was consummated by issuing 4,087,126 Exchangeable Shares
for all of MDA's outstanding common shares. The company also granted 328,399
options to acquire Orbital Common Stock to MDA employees who, at the date of
the acquisition, held options to acquire MDA common shares. The MDA
Acquisition is accounted for using the pooling of interests method of
accounting and, accordingly, Orbital's historical consolidated financial
statements have been restated to include MDA's financial position, results of
operations and cash flows. Merger expenses relating to the MDA Acquisition of
approximately $3,400,000 were charged to earnings during the three months ended
December 31, 1995 and are included in acquisition expenses in the accompanying
1995 consolidated statement of earnings.
Prior to the acquisition, MDA's financial results were prepared on a March 31
fiscal year basis. Orbital's restated financial statements for 1994 include
MDA's historical financial results for its fiscal year ended March 31, 1995.
Orbital's consolidated financial statements for the year ended December 31,
1995 include MDA's financial results for the twelve-month period ended December
31, 1995. The effect of recasting MDA's year end for 1995 has been charged to
Orbital's retained earnings as of January 1, 1995. The charge to retained
earnings eliminated the effect of including MDA's results of operations for the
three-month period ended March 31, 1995 of $1,047,000 in Orbital's 1995 and
1994 consolidated results of operations. MDA's revenues for the same
three-month period were approximately $20,634,000.
5/ SHORT-TERM INVESTMENTS
The following table sets forth the aggregate amortized cost, aggregate fair
value and gross unrealized gains and losses for Orbital's short-term
investments in debt securities:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Amortized cost $ 5,813 $ 19,645
Fair value 5,827 19,713
Unrealized gains 14 70
Unrealized losses -- (2)
- --------------------------------------------------------------------
</TABLE>
Orbital recognized net losses of approximately $261,000 on sales of short-term
investments in 1995 and had no such losses in 1996. Debt securities (at fair
value) with contractually scheduled maturities scheduled to mature in 1997 and
through 2001 are in the amounts of $1,470,000 and $4,357,000, respectively. No
securities mature after 2001.
6/ RECEIVABLES AND ACCRUED EXPENSES
The components of receivables are as follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Billed and billable $ 73,747 $ 63,552
Recoverable costs and accrued
profit not billed 62,628 47,855
Retainages due upon contract
completion 9,767 7,724
Allowance for doubtful accounts (1,368) (773)
------------------------------
Total $ 144,774 $ 118,358
====================================================================
</TABLE>
Approximately 53% of recoverable costs and accrued profit not billed and
retainages due upon contract completion at December 31, 1996 is due within one
year and will be billed on the basis of contract terms and delivery schedules.
The accuracy and appropriateness of Orbital's direct and indirect costs and
expenses under its government contracts, and therefore its receivables recorded
pursuant to such contracts, are subject to extensive regulation and audit by
the U.S. Defense Contract Audit Agency or by other appropriate agencies of the
U.S. Government, which have the right to challenge Orbital's cost estimates or
allocations with respect to any such contracts. Additionally, a substantial
portion of the payments to the company under government contracts are
provisional payments that are subject to potential adjustment upon audit by
such agencies. In the opinion of management, any adjustments likely to result
from inquiries or audits of its contracts will not have a material adverse
impact on the company's financial condition or results of operations.
At December 31, 1996 and 1995, $33,690,000 and $26,470,000, respectively, were
receivable from non-U.S. customers. The company enters into forward exchange
contracts to hedge against foreign currency fluctuations
49 ----------- ORBITAL
<PAGE> 22
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
on certain receivables and payables denominated in such foreign currencies.
Accordingly, Orbital is subject to off-balance sheet market risk for the
possibility that future changes in market prices may make the forward exchange
contracts less valuable. The following table summarizes outstanding foreign
exchange contracts at December 31, 1996 to (purchase) sell foreign currencies,
along with current market values:
<TABLE>
<CAPTION>
(U.S. dollars, in thousands)
- -------------------------------------------------------------------------------------
Foreign Currency Current Unrealized
Currency Hedged Contract Market Gain
Hedged Against Amount Value (Loss)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Belgian Francs CD $ 3,043 $ 2,885 $ 158
Belgian Francs PS 2 2 --
Italian Lira CD (23) (22) (1)
ECU CD 10,484 9,638 846
ECU PS 678 619 59
French Francs CD (50) (45) (5)
Pounds Sterling CD (410) (409) (1)
Japanese Yen CD 365 329 36
Malaysian Riggits CD 8,038 8,168 (130)
Norwegian Kroner CD 1,127 1,082 45
U.S. Dollars CD 6,068 6,168 100
- -------------------------------------------------------------------------------------
CD = Canadian Dollars PS = Pounds Sterling
- -------------------------------------------------------------------------------------
</TABLE>
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Payroll, payroll taxes and
fringe benefits $ 20,375 $ 17,856
Payable to subcontractors 8,660 11,552
Accrued contract costs 2,027 9,787
Other accrued expenses 1,310 2,279
-----------------------------
Total $ 32,372 $ 41,474
====================================================================
</TABLE>
7/ PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Land $ 1,422 $ 1,422
Buildings and leasehold
improvements 21,239 17,455
Machinery and equipment 116,270 90,061
Equipment under construction 21,572 28,301
Software and technical drawings 10,331 7,340
Accumulated depreciation and
amortization (68,161) (53,067)
-------------------------------
Total $ 102,673 $ 91,512
====================================================================
</TABLE>
Interest expense of approximately $7,300,000, $5,700,000 and $5,500,000 was
capitalized during 1996, 1995 and 1994, respectively, as part of the historical
cost of equipment under construction, satellite systems under construction and
investments in affiliates.
8/ SATELLITE SYSTEMS
Orbital and Orbital Imaging Corporation ("ORBIMAGE"), a wholly owned subsidiary
of the company, have constructed or are in the process of constructing several
of their own satellite systems that provide or will provide high-resolution
imaging, multi-spectral imaging and other Earth observation services to
commercial and government customers. Generally, the company does not begin
construction of a specific project until financing has been arranged or a
customer has committed to purchase future imaging services generated by or
provided from specific satellite systems. Orbital expenses the costs of
developing and constructing these systems until such time that the
technological and economic feasibility have been established. Once
established, Orbital capitalizes remaining construction costs, net of
non-refundable payments received from customers. Any refundable advance
payments for imagery received from customers are deferred until such time as
the imagery is delivered. At December 31, 1996 and 1995, Orbital had
capitalized approximately $26,562,000 and $14,910,000, respectively, relating
to various imaging satellite systems that are either operating or under
construction.
9/ SHORT-TERM BORROWINGS
The company has a revolving credit facility that provides for total borrowings
from an international syndicate of six banks of up to $65,000,000, subject to a
defined borrowing base composed of certain receivables. At December 31, 1996
and 1995, approximately $8,000,000 and $3,000,000, respectively, of borrowings
were outstanding against an available facility limit of approximately
$35,700,000 and $23,500,000, respectively. The interest rate charged under the
facility is a variable rate based on the prime rate, the Federal Funds rate or
adjusted LIBOR. As of December 31, 1996, the interest rate on outstanding
borrowings under this facility was approximately 7.5%. Borrowings are secured
by receivables and certain other assets. The facility prohibits the payment of
cash dividends and contains certain covenants with respect to the
50 ----------- ORBITAL
<PAGE> 23
company's working capital, fixed charge ratio, leverage ratio and tangible net
worth, and expires in September 1997.
In September 1995, Orbital entered into a $7,000,000 unsecured demand line of
credit with an international bank, which was expanded to $25,000,000 in 1996.
The line is repayable upon demand and bears interest at the prime rate or
LIBOR. At December 31, 1996, the interest rate on outstanding borrowings under
this line of credit was approximately 6%. At December 31, 1996, approximately
$17,500,000 of borrowings were outstanding against this line of credit. There
were no such borrowings outstanding at December 31, 1995.
The company increased another line of credit with a domestic bank to
$10,000,000 during 1996, subject to a defined borrowing base. At December 31,
1996 and 1995, $5,700,000 and $2,000,000, respectively, was outstanding against
an available facility limit of $6,110,000 and $3,000,000, respectively. The
interest rate on outstanding borrowings was approximately 8.25% at December 31,
1996. The facility is secured by substantially all the assets of Magellan and
contains certain covenants with respect to Magellan's working capital,
profitability, leverage ratio and tangible net worth.
10/ LONG-TERM OBLIGATIONS
The following sets forth the company's long-term obligations, excluding capital
lease obligations (See Note 11):
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
7.00% Secured Note, principal and
interest due monthly through
December 1998 $ 1,275 $ 1,876
7.74-9.35% Secured Notes, principal
and interest due monthly through
September 1997-October 1999 12,554 17,816
8.95% Secured Bank Note, principal
and interest due monthly through
September 1999 2,284 2,310
5.16% Secured Bank Notes, principal
and interest due monthly through
August 2003 1,631 4,340
11.5% Unsecured Note, interest due
semi-annually, principal due June 2001 20,000 20,000
6.75% Convertible Subordinated
Debentures, interest due semi-
annually, principal due 2003 -- 56,000
----------------------------
37,744 102,342
Less current portion (6,115) (6,084)
----------------------------
Total $ 31,629 $ 96,258
================================================================================
</TABLE>
The 7.00% secured note is collateralized by certain equipment located at the
company's Pomona, California facility. The 7.74-9.35% secured notes are
collateralized by certain equipment located at the company's Germantown,
Maryland facility. The 8.95% secured bank note was collateralized by the
company's satellite integration and test facility located in Dulles, Virginia.
The company chose to repay this note in February 1997.
The company has two secured bank borrowing agreements, totaling approximately
$44,000,000, of which $19,400,000 was available at December 31, 1996. The
secured bank notes, pursuant to an intercreditor agreement between two
international banks, provide for borrowings at a variable rate (5.16% at
December 31, 1996), and are collateralized by MDA's receivables, inventory and
certain other assets.
Orbital amended its 11.5% unsecured note during the third quarter of 1996 to
facilitate compliance with
51 ----------- ORBITAL
<PAGE> 24
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
certain financial covenants as well as to permit the completion of the ORBCOMM
Global debt financing (see below). In connection with this amendment, the
interest rate on the note increased from 10.5% to 11.5% effective July 1,
1996. The unsecured note contains certain covenants with respect to fixed
charge ratio, leverage ratio and tangible net worth, and includes certain
cross-default provisions.
On August 14, 1996, the company completed the redemption of the remaining
$55,880,000 outstanding principal amount of its 6.75% Convertible Subordinated
Debentures due 2003 (the "Debentures"). Pursuant to the terms of the indenture
governing the Debentures, the holders had the option of redeeming their
holdings for cash or converting their holdings into Orbital Common Stock at a
predetermined conversion rate. The company entered into a standby underwriting
agreement with an investment bank whereby the investment bank agreed, subject
to customary conditions, to purchase from the company shares of its Common
Stock in an amount to provide sufficient proceeds to the company to satisfy
any redemptions by the holders of the Debentures. As a result of the
conversion by the holders and the standby arrangement, the remaining
outstanding principal amount of the Debentures was converted into 3,887,304
shares of Common Stock.
On August 7, 1996, ORBCOMM Global issued $170,000,000 senior unsecured notes
due 2004 (the "ORBCOMM Notes") to institutional investors. The ORBCOMM Notes
bear interest at a fixed rate of 14% and provide for noteholder participation
in future ORBCOMM Global service revenues. The ORBCOMM Notes are fully and
unconditionally guaranteed on a joint and several basis by OCC and by Teleglobe
Mobile; the guarantee is non-recourse to Orbital.
The fair value of Orbital's long-term obligations at December 31, 1996 and 1995
is estimated at approximately $38,521,000 and $106,000,000, respectively, based
on quoted market prices or on current rates offered for debt of similar
remaining maturities. Scheduled maturities of long-term debt for 1997, 1998,
1999, 2000 and 2001 are $6,115,000, $5,349,000, $12,329,000, $7,024,000 and
$6,927,000, respectively.
11/LEASE COMMITMENTS
Aggregate minimum rental commitments under non-cancelable operating and capital
leases (primarily for office space and equipment) at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
(In thousands) Operating Capital
- -----------------------------------------------------------------
<S> <C> <C>
1997 $ 10,378 $ 1,377
1998 9,611 1,075
1999 9,091 520
2000 8,942 --
2001 8,334 --
2002 and thereafter 32,775 --
-------- --------
$ 79,131 $ 2,972
========
Less: Interest at 10% (321)
Less: Current portion (1,204)
--------
Total $ 1,447
=================================================================
</TABLE>
Rent expense under operating leases for 1996, 1995 and 1994 was $12,300,000,
$11,215,000 and $10,624,000, respectively.
12/ INCOME TAXES
The provisions (benefit) for income taxes consist of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT PROVISION:
Federal $ -- $ 33 $ 563
Foreign 1,831 1,180 756
State -- -- 732
DEFERRED PROVISION:
Federal $ -- $ (356) $ 342
Foreign -- (2,159) (93)
State -- -- 444
----------------------------------------
Total $ 1,831 $ (1,302) $ 2,744
====================================================================================
</TABLE>
52 ----------- ORBITAL
<PAGE> 25
The income tax provisions (benefit) are different from those computed using the
statutory U.S. Federal income tax rate as set forth below:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% (34.0)% 34.0%
Tax-exempt interest (0.6) (13.7) (5.7)
Intangible amortization 13.2 50.3 9.2
U.S. Federal tax credits -- -- (7.2)
State income taxes, net
of Federal benefits -- -- 2.3
Foreign sales corporation -- -- (1.3)
Foreign income taxes, net (12.9) (53.1) (1.4)
Disqualifying stock sales (3.2) (16.0) --
Change in valuation allowance (15.0) -- --
Other, net (6.2) 1.1 (3.4)
----------------------------------------
Effective Rate 10.3% (65.4)% 26.5%
=====================================================================================
</TABLE>
The tax effects of significant temporary differences are as follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
TAX ASSETS:
Non-deductible financial
statement accruals $ 30,003 $ 31,829
Federal net operating loss
carryforward 47,823 40,850
Intangible assets 6,865 6,865
Federal and foreign tax credit
carryforward 13,707 16,342
-----------------------------
98,398 95,886
Valuation allowance (57,233) (65,041)
-----------------------------
Tax assets, net $ 41,165 $ 30,845
=============================
TAX LIABILITIES:
Percentage of completion accounting $ 3,349 $ 2,555
Excess tax depreciation 5,280 7,198
Excess deductions for tax reporting
purposes 29,479 18,132
-----------------------------
Tax liabilities $ 38,108 $ 27,885
======================================================================
</TABLE>
The company established deferred tax assets in connection with its 1994
Fairchild Acquisition (See Note 4) of $35,446,000, and deferred tax liabilities
of $2,337,000. The company also established a valuation allowance of
approximately $33,109,000 against certain deferred tax assets acquired in
connection with the Fairchild Acquisition.
In 1996 and 1994, approximately 56.6% and 27.9%, respectively, of the company's
income before provision for income taxes and cumulative effect of an accounting
change was generated from foreign sources. In 1995, approximately $2,100,000
of income before benefit for income taxes and cumulative effect of an
accounting change was generated from foreign sources. The company had Federal
net operating loss and tax credit carryforwards of approximately $120,000,000
and $3,000,000, respectively, at December 31, 1996 that may be utilized through
the year 2012, subject to certain annual limitations and other restrictions, of
which portions expire beginning in 2001.
13/ COMMON STOCK AND STOCK OPTIONS
In 1996 and 1995, the company issued and sold 1,200,000 and 2,000,000 shares,
respectively, of its Common Stock in private placements to various offshore
investors, receiving net proceeds of approximately $20,300,000 and $32,400,000,
respectively.
The company's 1990 Stock Option Plan (the "1990 Plan") provides for grants of
either incentive or non-qualified stock options to officers, employee directors
and general employees of the company and its subsidiaries. Under the terms of
the 1990 Plan, incentive stock options may not be granted at less than 100% of
the fair market value of the company's Common Stock at the date of grant, and
non-qualified options may not be granted at less than 85% of the fair market
value of the company's Common Stock at the date of grant. Each option under
the 1990 Plan vests at a rate set forth by the Board of Directors in each
individual option agreement, generally in one-third increments over a
three-year period following the date of grant. Options expire no more than ten
years following the grant date. The 1990 Plan currently provides for the
granting of up to 2,975,000 shares of the company's Common Stock. The company
also maintains a plan that provides solely for automatic grants of
non-qualified stock options to eligible non-employee directors of the company.
In January 1997, Orbital's Board of Directors approved the company's 1997 Stock
Option and Incentive Plan (the "1997 Plan"), subject to stockholder approval.
The 1997 Plan will provide for an additional 1,600,000 shares of the company's
Common Stock to be available for grants of options and restricted stock to
officers,
53 ----------- ORBITAL
<PAGE> 26
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
directors, employees and consultants to the company. Incentive and
non-qualified stock options must be granted with an exercise price not less
than 100% of the stock's fair market value at the date of grant.
OCC adopted a stock option plan in 1992 (the "ORBCOMM Plan"). The ORBCOMM Plan
provides for grants of incentive and non-qualified stock options to purchase
OCC common stock to officers and employees of ORBCOMM Global and the company.
Under the terms of the ORBCOMM Plan, incentive stock options may not be granted
at less than 100% of the fair market value, and non-qualified options may not
be granted at less than 85% of the fair market value, of OCC common stock at
the date of grant as determined by a committee consisting of two OCC Board
members and two members appointed by Teleglobe Mobile. The options vest at a
rate set forth by the Board of Directors in each individual option agreement,
generally in one-fourth increments over a four-year period. Certain provisions
of the ORBCOMM Plan require OCC to repurchase, with cash or promissory notes,
the common stock acquired pursuant to the options. The cash repurchase amount
is restricted by the terms of the ORBCOMM Notes to an amount not to exceed
$1,000,000 in any one year. During 1996, OCC repurchased 47,760 shares of OCC
common stock acquired by current and former employees pursuant to OCC option
exercises.
The following tables summarize information regarding options under the
company's stock option plans (including option plans assumed by the company as
a result of the Magellan and MDA acquisitions) and the ORBCOMM Plan for the
last three years:
Orbital Options
<TABLE>
<CAPTION>
Weighted
Number of Option Price Average Outstanding
Shares Per Share Exercise Price and Exercisable
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OUTSTANDING AT
DECEMBER 31, 1993 1,324,198 $ 1.82 - $ 20.00 $ 9.92 558,422
Granted 978,560 $ 3.51 - $ 22.00 $ 17.63
Exercised (107,387) $ 3.51 - $ 15.30 $ 12.72
Cancelled/Expired (78,476) $ 10.20 - $ 22.00 $ 19.28
----------
OUTSTANDING AT
DECEMBER 31, 1994 2,116,895 $ 1.82 - $ 22.00 $ 13.02 997,981
Granted 553,966 $ 7.47 - $ 18.81 $ 16.97
Exercised (300,011) $ 3.51 - $ 15.30 $ 6.29
Cancelled/Expired (130,325) $ 3.51 - $ 22.00 $ 20.39
----------
OUTSTANDING AT
DECEMBER 31, 1995 2,240,525 $ 1.82 - $ 22.00 $ 14.16 1,133,713
Granted 1,372,000 $ 12.25 - $ 17.63 $ 13.26
Exercised (298,916) $ 1.82 - $ 17.75 $ 7.20
Cancelled/Expired (588,399) $ 3.51 - $ 22.00 $ 20.23
----------
OUTSTANDING AT
DECEMBER 31, 1996 2,725,210 $ 1.82 - $ 22.00 $ 13.10 1,324,316
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ---------------------------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at Dec. 31, 1996 Contractual Life Exercise Price at Dec. 31, 1996 Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.82 - $ 12.25 939,144 6.2 years $ 9.71 491,976 $ 8.55
$ 12.96 - $ 13.71 1,018,164 7.8 years $ 13.52 433,576 $ 13.54
$ 13.75 - $ 22.00 767,902 7.1 years $ 16.71 398,764 $ 16.57
--------- ---------
$ 1.82 - $ 22.00 2,725,210 7.1 years $ 13.10 1,324,316 $ 12.60
====================================================================================================================================
</TABLE>
54 ----------- ORBITAL
<PAGE> 27
OCC Options
<TABLE>
<CAPTION>
Weighted
Number of Option Price Average Outstanding
Shares Per Share Exercise Price and Exercisable
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING AT
DECEMBER 31, 1993 496,274 $ 1.50 - $ 12.50 $ 3.81 184,966
Granted 118,650 $ 5.25 - $ 12.50 $ 13.42
Exercised (4,186) $ 1.50 - $ 4.00 $ 1.76
Cancelled/Expired (11,664) $ 1.50 - $ 13.00 $ 8.17
----------
OUTSTANDING AT
DECEMBER 31, 1994 599,074 $ 1.50 - $ 14.00 $ 5.64 298,657
Granted -- N/A N/A
Exercised (8,936) $ 1.50 - $ 13.00 $ 3.87
Cancelled/Expired (44,238) $ 1.50 - $ 13.00 $ 6.74
----------
OUTSTANDING AT
DECEMBER 31, 1995 545,900 $ 1.50 - $ 14.00 $ 5.56 411,086
Granted 154,500 $ 17.00 - $ 25.00 $ 20.50
Exercised (67,270) $ 1.50 - $ 13.00 $ 2.43
Cancelled/Expired (34,300) $ 1.50 - $ 17.00 $ 13.81
----------
OUTSTANDING AT
DECEMBER 31, 1996 598,830 $ 1.50 - $ 25.00 $ 9.40 393,903
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- --------------------------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at Dec. 31, 1996 Contractual Life Exercise Price at Dec. 31, 1996 Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.50 - $ 4.00 283,040 5.8 years $ 2.37 283,040 $ 2.37
$ 5.25 - $ 17.00 248,290 7.5 years $ 13.18 110,863 $ 11.33
$ 25.00 - $ 25.00 67,500 9.3 years $ 25.00 0 N/A
----------- ----------
$ 1.50 - $ 25.00 598,830 6.9 years $ 9.40 393,903 $ 4.89
====================================================================================================================================
</TABLE>
During 1996, Magellan and ORBIMAGE each adopted a 1996 Stock Option Plan (the
"Magellan Plan" and the "ORBIMAGE Plan," respectively) pursuant to which
incentive or non-qualified options to purchase up to 7,000,000 shares of
Magellan common stock and 2,800,000 shares of ORBIMAGE common stock may be
granted to Magellan and Orbital employees, consultants or advisors in the case
of the Magellan Plan, and ORBIMAGE and Orbital employees, consultants or
advisors in the case of the ORBIMAGE Plan. Under both plans, stock options may
not be granted with an exercise price less than 85% of the stock's fair market
value at the date of grant, as determined by the respective Boards of Directors
and approved by Orbital's Audit and Finance Committee. The Magellan and
ORBIMAGE options generally vest incrementally over a three-year period.
During 1996, Magellan granted 6,915,900 options pursuant to the Magellan Plan
at $1.10 per share, the fair market value at the date of grant of Magellan
common stock. Of these grants, 322,300 were cancelled in 1996, and 667,539
options are exercisable at December 31, 1996. Certain provisions of the
Magellan Plan require Magellan to repurchase the common stock acquired pursuant
to the options. Also during 1996, ORBIMAGE granted 1,408,000 options pursuant
to the ORBIMAGE Plan at $3.60 per share, the fair market value at the date of
grant of ORBIMAGE common stock. Of these grants, 352,000 are exercisable at
December 31, 1996. The weighted average remaining contractual life of
outstanding options was approximately ten years for each of the Magellan and
ORBIMAGE Plans at December 31, 1996.
55 ----------- ORBITAL
<PAGE> 28
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Additional Expected Average Weighted Average
Shares Dividend Risk-Free Expected Life Fair Value
Available Volatility Yield Interest Rate (In Years) Per Share
------------- ------------- ---------------- --------------- ------------- ----------------
Dec. 31, 1996 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orbital Plans 231,955 56% 58% 0% 0% 5.3% 7.0% 4.5 4.5 $ 13.26 $ 16.97
ORBCOMM Plan 20,778 30% N/A 0% 0% 5.6% N/A 4.5 N/A 20.50 N/A
Magellan Plan 406,400 30% N/A 0% 0% 6.4% N/A 4.5 N/A 1.10 N/A
ORBIMAGE Plan 1,392,000 30% N/A 0% 0% 5.8% N/A 4.5 N/A 3.60 N/A
==============================================================================================================================
</TABLE>
14/ STOCK-BASED COMPENSATION
On January 1, 1996, the company adopted SFAS 123. The company uses the
Black-Scholes option pricing model to determine the pro forma impact to the
company's net income and earnings per share. The model utilizes certain
information, such as the interest rate on a risk-free security maturing
generally at the same time as the option being valued, and requires certain
assumptions, such as the expected amount of time an option will be outstanding
until it is exercised or it expires, to calculate the weighted average fair
value per share of stock options granted. This information and the assumptions
used for 1996 and 1995 for all option plans is summarized as follows.
The company recorded compensation expense of approximately $300,000, $55,000
and $234,000 related to the various option plans for the years ended December
31, 1996, 1995 and 1994, respectively. Had the company determined compensation
expense based on the fair value at the grant date for stock options in
accordance with the alternative method prescribed by SFAS 123, the company's
net income, and primary and fully diluted earnings per share, would have been
$7,202,000, $0.25 and $0.25, respectively, for the year ended December 31,
1996, while net loss and primary and fully diluted loss per share would have
been $6,773,000, $0.26 and $0.26, respectively, for the year ended December 31,
1995. Pro forma net income reflects only options granted in 1996 and 1995 and,
therefore, may not be representative of the effects for future periods.
During 1996, the company issued 150,000 stock appreciation rights that vest
over a three-year period. Payment is dependent on appreciation of the
company's Common Stock over the vesting period. The company recorded
approximately $175,000 in compensation expense during 1996 for this issuance.
15/ SUPPLEMENTAL DISCLOSURES
Defined Contribution Plans
At December 31, 1996, the company had four defined contribution plans (the
"Plans") in accordance with Section 401(k) of the Internal Revenue Code of
1986, as amended. Generally, all full-time employees are eligible for
participation in the Plan applicable to their location. Company contributions
to the Plans are made based on certain plan provisions and at the discretion of
the Board of Directors, and were approximately $5,818,000, $5,015,000 and
$2,991,000 during 1996, 1995 and 1994, respectively. Total company
contributions to foreign defined contribution plans during 1996, 1995 and 1994
were $1,279,000, $1,518,000 and $1,436,000, respectively.
Cash Flows
Cash payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $ 10,860 $ 9,906 $ 11,831
Income taxes paid,
net of refunds 1,327 1,339 2,447
==========================================================================
</TABLE>
The company paid approximately $40,800,000 in cash and issued Common Stock with
a fair value of approximately $31,000,000 in connection with the 1994 Fairchild
Acquisition in return for approximately $95,000,000 in assets, and the company
assumed or established liabilities of approximately $23,200,000.
56 ----------- ORBITAL
<PAGE> 29
Summary Selected Quarterly Financial Data (Unaudited)
The following is a summary of selected quarterly financial data for the years
ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
(In thousands, Quarter Ended
except share data) Mar. 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Revenues $ 104,894 $ 116,512 $ 119,571 $ 120,458
Income from operations 5,872 7,324 7,124 3,522
Net income 3,128 3,839 4,456 4,484
Earnings per share,
primary 0.12 0.14 0.15 0.14
fully diluted 0.12 0.14 0.15 0.14
1995
Revenues $ 88,975 $ 81,766 $ 95,817 $ 97,762
Income (loss) from
operations 4,614 (972) 3,683 (6,179)
Net income (loss) before
cumulative effect of
accounting change 3,015 (1,626) 1,757 (3,837)
Earnings (loss) per share
primary (0.05) (0.07) 0.06 (0.14)
fully diluted (0.05) (0.07) 0.06 (0.14)
1994
Revenues $ 70,266 $ 68,778 $ 76,832 $ 85,700
Income from operations 3,517 908 3,496 3,992
Net income 2,729 1,020 1,681 2,187
Earnings per share
primary 0.12 0.05 0.07 0.09
fully diluted 0.10 0.04 0.07 0.09
- -------------------------------------------------------------------------------------
</TABLE>
57 ----------- ORBITAL
<PAGE> 30
BOARD OF
DIRECTORS
FRED C. ALCORN
- - President, Alcorn Oil & Gas Company
- - Former Director, Space Foundation
KELLY H. BURKE
- - Chairman, Stafford, Burke and Hecker
- - Retired Lt. General, U.S. Air Force
- - Former Advisor, White House Science Office and National Academy of Sciences
BRUCE W. FERGUSON
- - Orbital Co-Founder
- - Executive Vice President and General Manager/Communications and Information
Services Group
DANIEL J. FINK
- - President, D.J. Fink Associates, Inc.
- - Former Senior Vice President, General Electric Company
- - Former Chairman, NASA Advisory Council
LENNARD A. FISK
- - Department Chairman and Professor, University of Michigan
- - Former Associate Administrator, NASA
JACK L. KERREBROCK
- - Professor, M.I.T.
- - Former Associate Administrator, NASA
- - Former Member, National Commission on Space
DOUGLAS S. LUKE
- - President, WLD Enterprises, Inc.
- - Former Managing Director, Rothschild, Inc.
JOHN L. McLUCAS
- - Former Secretary, U.S. Air Force
- - Former Administrator, FAA
- - Former Executive Vice President, COMSAT Corporation
JANICE OBUCHOWSKI
- - Executive Vice President and Co-Founder, NextWave TeleCom, Inc.
- - President, Freedom Technologies, Incorporated
- - Former Administrator, National Telecommunications and Information Agency
FRANK L. SALIZZONI
- - President and Chief Executive Officer, H&R Block, Inc.
- - Former President and Chief Operating Officer, USAir, Inc. and USAir
Group, Inc.
HARRISON H. SCHMITT
- - Business and Technical Consultant
- - Former U.S. Senator, New Mexico
- - Former Apollo Astronaut, NASA
DAVID W. THOMPSON
- - Orbital Co-Founder
- - Chairman, President and Chief Executive Officer
JAMES R. THOMPSON
- - Executive Vice President and General Manager/Launch Systems Group
- - Former Deputy Administrator, NASA
SCOTT L. WEBSTER
- - Orbital Co-Founder
- - Senior Vice President/Special Projects
58 ----------- ORBITAL
<PAGE> 1
EXHIBIT 21
ORBITAL SCIENCES CORPORATION
LIST OF SUBSIDIARIES AS OF MARCH 26, 1997
Orbital Communications Corporation, a Delaware corporation
ORBCOMM USA, L.P.*, a Delaware limited partnership
Orbital Imaging Corporation, a Delaware corporation
Orbital Services Corporation, a Delaware corporation
Magellan Corporation, a Delaware corporation, doing business at Magellan
Systems Corporation
Magellan Sistemas de Mexico*, a Mexican corporation
Magellan Foreign Sales Corp.*, a Barbados corporation
MacDonald, Dettwiler Holdings Inc., a Canadian corporation
MacDonald, Dettwiler and Associates Ltd.*, a Canadian corporation
MacDonald, Dettwiler Technologies Ltd.*, a British Columbia corporation
MacDonald Dettwiler Pty Ltd.*, an Australian corporation
MacDonald, Dettwiler Technologies Inc.*, a Delaware corporation
MacDonald, Dettwiler Limited*, a United Kingdom corporation
Earth Observation Sciences Ltd.*, a United Kingdom corporation
Iotek, Inc.*, a Nova Scotia corporation
- ---------------------
*Indirect subsidiary.
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Orbital Sciences Corporation:
We consent to the incorporation by reference in the registration statements
(Nos. 33-47789, 33-84296, 33-62277 and 33-64517) on Form S-8 of Orbital
Sciences Corporation of our reports dated February 5, 1997, relating to the
consolidated balance sheets of Orbital Sciences Corporation and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, and the related consolidated
financial statement schedule, which reports are incorporated by reference or
appear in the December 31, 1996 annual report on form 10-K of Orbital
Sciences Corporation.
KPMG Peat Marwick LLP
Washington, D.C.
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AT AND FOR
THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000820736
<NAME> ORBITAL SCIENCES CORP /DE/
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 26,859
<SECURITIES> 5,827
<RECEIVABLES> 11,135
<ALLOWANCES> (1,368)
<INVENTORY> 27,159
<CURRENT-ASSETS> 211,094
<PP&E> 197,396
<DEPRECIATION> (69,534)
<TOTAL-ASSETS> 504,712
<CURRENT-LIABILITIES> 127,421
<BONDS> 33,076
0
0
<COMMON> 322
<OTHER-SE> 330,180
<TOTAL-LIABILITY-AND-EQUITY> 487,997
<SALES> 461,435
<TOTAL-REVENUES> 461,435
<CGS> 336,261
<TOTAL-COSTS> 336,261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 603
<INTEREST-EXPENSE> 2,486
<INCOME-PRETAX> 17,738
<INCOME-TAX> 1,831
<INCOME-CONTINUING> 15,907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,907
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
<PAGE> 1
EXHIBIT 99
IMPORTANT FACTORS REGARDING
FORWARD LOOKING STATEMENTS
The following factors, among others, could affect the
Company's actual results and could cause Orbital's actual consolidated results
during 1997 and beyond, to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. (Capitalized
terms used herein have the meanings assigned to them in Orbital Sciences
Corporation's Form 10-K with which this exhibit is filed.)
- - Orbital, like most companies and governments that have launch
and satellite programs, has experienced occasional product
failures and other problems, including with respect to certain
of its launch vehicles and satellites. In addition to any
costs resulting from product warranties, contract performance
or required remedial action, product failures may result in
increased costs or loss of revenues due to postponement or
cancellation of subsequently scheduled launches or spacecraft
operations or other product deliveries.
- - As of December 31, 1996, approximately 60% of Orbital's
backlog is with the U.S. Government and its agencies or from
subcontracts with prime contractors to the U.S. Government.
Most of Orbital's government contracts are funded
incrementally on a year-to-year basis. Changes in government
policies, priorities or funding levels through agency or
program budget reductions by the U.S. Congress or the
imposition of budgetary constraints could materially adversely
affect Orbital's financial condition or results of operations.
All the Company's U.S. Government contracts and, in general,
its subcontracts with U.S. Government prime contractors,
provide that such contracts may be terminated at will by the
U.S. Government or the prime contractor, respectively. There
can be no assurance that these contracts will not be
terminated or suspended in the future, or that contract
suspensions or termination will not result in unreimbursable
expenses or charges or other adverse effects on the Company.
- - Certain of the Company's revenues have been generated under
fixed-price incentive fee, firm fixed-price and cost-plus-fee
long-term contracts. Revenue recognition and profitability,
if any, from a particular contract may be adversely affected
to the extent that original cost estimates, estimated costs to
complete or incentive or award fee estimates are revised,
delivery schedules are delayed, or progress under a contract
is otherwise impeded.
- - The accuracy and appropriateness of Orbital's direct and
indirect costs and expenses under its U.S. Government
contracts are subject to extensive regulation and audit by the
Defense Contract Audit Agency or by other appropriate agencies
of the U.S. Government. These agencies have the right to
challenge Orbital's cost estimates or allocations with respect
to any such contract. Additionally, a substantial portion of
payments to the Company under U.S. Government contracts are
provisional payments that are subject to potential adjustment
upon audit by such agencies.
<PAGE> 2
- - Start-up of the ORBCOMM System will produce significant
ORBCOMM Global operating losses for several more years. Even
if the ORBCOMM System is fully constructed and operational,
there can be no assurance that an adequate market will develop
for ORBCOMM services, that ORBCOMM Global will achieve
profitable operations or that Orbital will recover any of its
past or anticipated investment in the ORBCOMM System. Because
Orbital (through OCC) has a 50% participating interest in
ORBCOMM Global, Orbital expects to recognize its proportionate
share of ORBCOMM Global profits and losses. If full
development and implementation of the ORBCOMM System were to
be delayed or significantly restricted, the Company could be
required to expense part or all of its investment in the
ORBCOMM System.
- - ORBIMAGE is pursuing one-meter high-resolution satellite
imagery that would be provided by the OrbView-3 satellite
currently under development by the Company, with Orbital under
contract to provide the launch service, ground stations and
other related products and services. OrbView-3 would be the
third in a fleet of three spacecraft, including OrbView-1 and
OrbView-2, that will constitute the foundation of the
Company's commercial satellite remote imagery business. The
Company is currently pursuing a transaction that would involve
a sale of ORBIMAGE equity securities to one or more third
parties in order to finance such venture including the
development and construction of the OrbView-3 satellite and
ground system. There can be no assurance that the Company
will be able to conclude such financing arrangement, or
develop and launch the system in a timely or cost-effective
manner, or establish a profitable commercial Earth observation
and other remote imaging businesses.
2
